Cognitive hierarchies and the centipede game
AbstractIn 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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Bibliographic InfoPaper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 723.
Length: 33 pages
Date of creation: 19 Jan 2010
Date of revision: 01 Oct 2010
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centipede game; cognitive hierarchy; paradox backward induction; experimental data analysis;
Find related papers by JEL classification:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
- D03 - Microeconomics - - General - - - Behavioral Economics; Underlying Principles
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-01-30 (All new papers)
- NEP-CBE-2010-01-30 (Cognitive & Behavioural Economics)
- NEP-EXP-2010-01-30 (Experimental Economics)
- NEP-GTH-2010-01-30 (Game Theory)
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