In recent years, integrated circuits (ICs) have become<br>significant for various industries and their security has<br>been given greater priority, specifically in the supply chain.<br>Budgetary constraints have compelled IC designers to offshore manufacturing to third-party companies. When the designer gets the manufactured ICs back, it is imperative to test for potential threats like hardware trojans (HT). In this paper, a novel multilevel game-theoretic framework is introduced to analyze the interactions between a malicious IC manufacturer and the tester. In particular, the game is formulated as a non-cooperative, zerosum, repeated game using prospect theory (PT) that captures different players’ rationalities under uncertainty. The repeated game is separated into a learning stage, in which the defender<br><div>learns about the attacker’s tendencies, and an actual game stage, where this learning is used. Experiments show great incentive for the attacker to deceive the defender about their actual rationality by “playing dumb” in the learning stage (deception). This scenario is captured using hypergame theory to model the attacker’s view of the game. The optimal deception rationality of the attacker is analytically derived to maximize utility gain. For the defender, a first-step deception mitigation process is proposed to thwart the effects of deception. Simulation results show that the attacker can profit from the deception as it can successfully insert HTs in the manufactured ICs without being detected.</div><div><br></div><div>This paper has been accepted for publication in <b>IEEE Cyber Science Conference 2020</b><br></div>