Definition ∞ Level-K reasoning is a behavioral game theory model that describes how individuals make strategic decisions by iteratively predicting the actions of others, assuming those others also engage in limited reasoning. A Level-0 player acts non-strategically, a Level-1 player assumes others are Level-0, a Level-2 player assumes others are Level-1, and so on. This framework accounts for varying degrees of strategic sophistication among participants. It provides a more realistic depiction of human decision-making than classical game theory.
Context ∞ In decentralized finance and blockchain governance, Level-K reasoning helps analyze how participants might strategically interact in scenarios like bidding for transaction priority or voting on protocol changes. Understanding these cognitive hierarchies assists in designing more robust and manipulation-resistant incentive mechanisms. Future research may apply Level-K models to predict emergent behaviors in complex decentralized autonomous organizations, improving the stability and fairness of these systems.
Blockchain Knowledge
Cryptocurrency Foundation
Cryptospace Newsfeed
