Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/206610
Authors: 
Mauersberger, Felix
Nagel, Rosemarie
Bühren, Christoph
Year of Publication: 
2019
Series/Report no.: 
Economics Discussion Papers No. 2019-53
Abstract: 
The goal of this paper is to show how adding behavioral components to micro-foundated models of macroeconomics may contribute to a better understanding of real world phenomena. The authors introduce the reader to variations of the Keynesian Beauty Contest (Keynes, The General Theory of Employment, Interest, and Money, 1936), theoretically and experimentally with a descriptive model of behavior. They bridge the discrepancies of (benchmark) solution concepts and bounded rationality through step-level reasoning, the so-called level-k or cognitive hierarchy models. These models have been recently used as building blocks for new behavioral macro theories to understand puzzles like the lacking rise of inflation after the financial crisis, the effectiveness of quantitative easing, the forward guidance puzzle and the effectiveness of temporary fiscal expansion.
Subjects: 
beauty contest game
expectation formation
equilibration
level-k reasoning
macroeconomics
game theory
experimental economics
JEL: 
E12
E13
E7
D80
D9
C91
Creative Commons License: 
https://creativecommons.org/licenses/by/4.0/
Document Type: 
Working Paper

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