Magic Mirror on the Wall, Who Is the Smartest One of All?

In the canonical model of bounded rationality each player best-responds to their belief that
other players reason to some finite level. We propose a novel behavior that reflects the player’s
belief that while other players may be rational, the player cannot model and hence predict the
behavior of others. This encompasses a situation where a player believes that their opponent can
reason to a higher level than they do. We propose an identification strategy for such behavior,
and evaluate it experimentally.

Here is a link to a draft of the paper: http://www.johanneshoelzemann.com/papers/magic_mirror.pdf