Mixed Strategies and Iterative Elimination of Strongly Dominated Strategies: An Experimental Investigation of States of Knowledge

Abstract

The iterative elimination of strongly dominated strategies (IESDS) and mixed-equilibrium solution concepts are studied in an iterated two-person investment game with discrete strategy spaces, non-recoverable investments, and either equal or unequal investment capital. In this game, the player investing the largest amount wins the competition and receives a fixed reward; ties are counted as losses. Both cases of symmetric and asymmetric dyads are studied theoretically and experimentally. Results from two experiments provide support for the mixed-strategy equilibrium solution on the aggregate but not the individual level, and evidence for a hierarchy of bounded IESDS.

Keyword(s): Mixed strategies, Iterative deletion of strongly dominated strategies, Bounded rationality, Adaptive learning

JEL Classification: C72, C92