ON PLAYERS MODELS OF OTHER PLAYERS - THEORY AND EXPERIMENTAL-EVIDENCE

We develop and test a theory of human behavior in 3 x 3 symmetric game s. The theory hypothesizes a family of five boundedly rational archety pes distinguished by their model of other players and their ability to identify optimal choices given their priors. We designed and conducte d an experiment to detect these archetypes as well as a rational expec tations type and to estimate parameters which define these types. The experimental evidence rejects the rational expectations type but confi rms the boundedly rational theory. We consider this a stepping stone t oward a descriptive and prescriptive theory of games. (C) 1995 Academi c Press, Inc.