Variable-Frame Level-n Theory

Abstract We develop a boundedly rational version of variable frame theory by merging the variable-frame concept with level- n theory. Variable frame theory assumes that a player's options are determined by a set of attributes (her “frame”), which induce a partition of the action set. Schelling competence emerges by combining frame-induced options with unbounded rationality and with payoff-dominance and symmetry disqualification. The weak empirical evidence for these assumptions motivates variable frame level- n theory, which predicts the Schelling competence by combining a nonrational level-0 tendency with reasoning by higher-level players. Journal of Economic Literature Classification Numbers: B41, C70.

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