An Experiment on Forward versus Backward Induction: How Fairness and Levels of Reasoning Matter
AbstractWe report the experimental results on a game with an outside option where induction contradicts with background induction based on a focal, risk dominant equilibrium. The latter procedure yields the equilibrium selected by Harsanyi and Selton's (1888) theory, which is hence here in contradiction with strategic stability (Kohlberg-Mertens (1985)). We find the Harsanyi-Selton solution to be in much better agreement with our data. Since fairness and bounded rationality seem to matter we discuss whether recent behavioral theories, in particular fairness theories and learning, might explain our findings. The fairness theories by Fehr and Schmidt (1999), Bolton and Ockenfels (2000), when calibrated using experimental data on dictator- and ultimatum games, indeed predict that forward induction should play no role for our experiment and that the outside option should be chosen by all sufficiently selfish players. However, there is a multiplicity of "fairness equilibra", some of which seem to be rejected because they require too many levels of reasoning"
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Exeter University, Department of Economics in its series Discussion Papers with number 0804.
Date of creation: 2008
Date of revision:
Contact details of provider:
Postal: Streatham Court, Rennes Drive, Exeter EX4 4PU
Phone: (01392) 263218
Fax: (01392) 263242
Web page: http://business-school.exeter.ac.uk/about/departments/economics/
More information through EDIRC
experiments; equilibrium selection; forward induction; fairness; levels of reasoning.;
Find related papers by JEL classification:
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
You can help add them by filling out this form.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Carlos Cortinhas).
If references are entirely missing, you can add them using this form.