How can one recover after a knock out (or two) I'm 2 levels ahead, is this game over for the other player? Should they be given extra turns?

darkwaterz said:

When you're knocked out, you lose all your Gold and your highest cost Item or Ally. You DON'T lose your unspent Adventure Counters as written in the Rulebook; this was an error and was corrected by the 2.2 FAQ.

You keep your Experience Counters, unspent Adventure Counters and Items/Allies except the one you discarded. If you're careful and manage to purchase good Items and Allies, you can make it.

The only exception is the Doom Track variant. If you play with the Doom Track, a knockout can be too much to recover in short time. If you feel uncomfortable, don't use the Doom Track and try the "Softer Knock-outs" variant. This makes the game too easy IMO, but everyone should adjust the gameplay as he wishes.