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Cognitive hierarchies and the centipede game

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  • Bottero, Margherita

    ()
    (Dept. of Economics, Stockholm School of Economics)

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    Abstract

    In the present work, I adopt the cognitive hierarchy approach to analyze the centipede game. To this end, I present and study an extensive-form version of Camerer et al.'s (2004) original normal-form model. The resulting predictions are evaluated empirically using laboratory data borrowed from a previously published experiment. The paper features two main contributions. First, it presents a parsimonious model that can, in principle, be generalized to any two-person extensive-form game of perfect information. Secondly, it demonstrates that in the centipede game the cognitive hierarchy approach leads to predictions which are not fully backwardly inductive and that can help to explain some key feature of the experimental data.

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    File URL: http://swopec.hhs.se/hastef/papers/hastef0723.pdf
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    Bibliographic Info

    Paper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 723.

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    Length: 33 pages
    Date of creation: 19 Jan 2010
    Date of revision: 01 Oct 2010
    Handle: RePEc:hhs:hastef:0723

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    Related research

    Keywords: centipede game; cognitive hierarchy; paradox backward induction; experimental data analysis;

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