Differences in cognitive sophistication and effort are at the root of behavioral heterogeneity in economics. To explain this heterogeneity, behavioral models assume that certain choices indicate higher cognitive effort. A fundamental problem with this approach is that observing a choice does not...

Differences in cognitive sophistication and effort are at the root of behavioral heterogeneity in economics. To explain this heterogeneity, behavioral models assume that certain choices indicate higher cognitive effort. A fundamental problem with this approach is that observing a choice does not...

We examine the role of higher order beliefs in asset markets where coordination between a buyer and seller can lead to gains to trade. The scenarios are modeled such that trader’s strategies do not only depend upon their beliefs of underlying economic phenomena, but also upon the others’...