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Level-k analysis of experimental centipede games

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  • Kawagoe, Toshiji
  • Takizawa, Hirokazu
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    Abstract

    As one of the best-known examples of the paradox of backward induction, centipede games have prompted a host of studies with various approaches and explanations (McKelvey and Palfrey, 1992; Fey et al., 1996; Nagel and Tang, 1998; Rapoport et al., 2003; Palacios-Huerta and Volij, 2009). Focusing on initial plays observed in experiments, this paper attempts to offer another explanation based on thorough study of level-k models as applied to these games. Borrowing ideas from the cognitive hierarchy model (Camerer et al., 2004), the authors constructed a group of models based on levels of rationality, and also tested for various assumptions on the play of the most naïve player type in these models. It was found that level-k models generally perform better than the agent quantal response equilibrium (AQRE) model and its variant with altruistic player types for increasing-pie centipede games, while the AQRE model with altruistic player types performs better in constant-pie games.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

    Volume (Year): 82 (2012)
    Issue (Month): 2 ()
    Pages: 548-566

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    Handle: RePEc:eee:jeborg:v:82:y:2012:i:2:p:548-566

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    Web page: http://www.elsevier.com/locate/jebo

    Related research

    Keywords: Centipede game; Level-k analysis; Bounded rationality; Altruism; Experiment;

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    References

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    Cited by:
    1. Choo, Lawrence C.Y & Kaplan, Todd R., 2014. "Explaining Behavior in the "11-20" Game," MPRA Paper 52808, University Library of Munich, Germany.
    2. Benndorf, Volker & Kübler, Dorothea & Normann, Hans-Theo, 2013. "Privacy concerns, voluntary disclosure of information, and unraveling: An experiment," Discussion Papers, Research Unit: Market Behavior SP II 2013-208, Social Science Research Center Berlin (WZB).

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