Abstract - In a recent paper, Lin & Palfrey (JET 2024) developed a theory of cognitive hierarchies (CH) in sequential games, and observed that this solution concept is not reduced-normal-form invariant. In this work I qualify and explain this observation. I show that the CH model is normal-form invariant, and that the differences arising from the application of the CH model to the reduced normal form depend only on how randomization by level-0 types is modeled. Indeed, while the uniform behavior strategy in the extensive form yields the uniform mixed strategy in the normal form, the latter does not correspond to the uniform randomization in the reduced normal form, because different reduced strategies may correspond to sets of equivalent strategies with different cardinalities. I also comment on (i) the invariance of the CH model to some transformations of the sequential game, and (ii) the independence of conditional beliefs about co-players' level-types.

The paper is available at the following LINK

For further information please contact michela.raganato@unibocconi.it