Indirect higher order beliefs and cooperation

This study experimentally examines the role of indirect higher order beliefs in sequential psychological games. We consider a three-player sequential game in which the first and third players do not interact sequentially, but only through an intermediary, the second player. We posit that the third player’s decision to cooperate depends on his indirect higher order belief, namely, his belief about what the first player believes the second player would choose. We employ pre-play communication between the first and third players as a way to influence the third player’s indirect higher order belief. The evidence demonstrates that communication can effectively induce cooperation from the third player by shaping his indirect higher order belief.