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Discrete Dynamics in Nature and Society
Volume 2017 (2017), Article ID 2768045, 8 pages
https://doi.org/10.1155/2017/2768045
Research Article

Strategic Uncertainty in Markets for Nonrenewable Resources: A Level- Approach

1Helmut Schmidt University/University of the Federal Armed Forces, Hamburg, Germany
2WZB Berlin Social Science Center, Berlin, Germany

Correspondence should be addressed to Armin F├╝genschuh

Received 20 June 2017; Revised 16 September 2017; Accepted 18 September 2017; Published 30 October 2017

Academic Editor: Chris Goodrich

Copyright © 2017 Ingmar Vierhaus et al. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

Existing models of nonrenewable resources assume that sophisticated agents compete with other sophisticated agents. This study instead uses a level- approach to examine cases where the focal agent is uncertain about the strategy of his opponent or predicts that the opponent will act in a nonsophisticated manner. Level-0 players are randomized uniformly across all possible actions, and level- players best respond to the action of player . We study a dynamic nonrenewable resource game with a large number of actions. We are able to solve for the level-1 strategy by reducing the averaging problem to an optimization problem against a single action. We show that lower levels of strategic reasoning are close to the Walras and collusive benchmark, whereas higher level strategies converge to the Nash-Hotelling equilibrium. These results are then fitted to experimental data, suggesting that the level of sophistication of participants increased over the course of the experiment.