Reasoning about others' reasoning

Recent experiments suggest that level-k behavior is often driven by subjects' beliefs, rather than their binding cognitive bounds. But the extent to which this is true in general is not completely understood, mainly because disentangling ‘cognitive’ and ‘behavioral’ levels is challenging experimentally and theoretically. In this paper we provide a simple experimental design strategy (the ‘tutorial method’) to disentangle the two concepts purely based on subjects' choices. We also provide a ‘replacement method’ to assess whether the increased sophistication observed when stakes are higher is due to an increase in subjects' own understanding or to their beliefs over others' increased incentives to reason.