Information and Beliefs in a Repeated Normal-form Game

Abstract

We study beliefs and choices in a repeated normal-form game. In addition to a baseline treatment with common knowledge of the game structure and feedback about choices in the previous period, we run treatments (i) without feedback about previous play, (ii) with no information about the opponent?s payo¤s and (iii) with random matching. Using Stahl and Wilson's (1995) model of limited strategic reasoning, we classify behavior with regard to its strategic sophistication and consider its development over time. We use belief statements to track the consistency of subjects' actions and beliefs as well as the accuracy of their beliefs (relative to the opponent's true choice) over time. In the baseline treatment we observe more sophisticated play as well as more consistent and more accurate beliefs over time. We isolate feedback as the main driving force of such learning. In contrast, information about the opponent's payoffs has almost no effect on the learning path. While it has an impact on the average choice and belief structure aggregated over all periods, it does not alter the choices and the belief accuracy in their development over time.