'Nobody Goes There Anymore - It's Too Crowded : ' Level-k Thinking in the Restaurant Game

A game of herding with capacity constraints is studied experimentally. Differences between Level-k strategies depend on the cost of choosing an alternative that has reached capacity, with a maximum difference between Level-1 and higher levels when the cost is high. This design makes Level-1 behavior relatively easy to distinguish from that of higher levels, compared to standard herding games. A substantial proportion of observed strategies are consistent with Level-1, while many of the remaining strategies are consistent with higher levels. Within-subject correlations across settings provide evidence that Level-1 thinking can explain the overweighting of private information commonly observed in herding games. In addition, evidence of a correlation between cognitive ability and level of thinking is found