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Rationalizing Irrational Beliefs

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Author Info

  • Geoffrey Dunbar

    (Simon Fraser University)

  • Juan Tu

    (Queen's University)

  • Ruqu Wang

    ()
    (Queen's University)

  • Xiaoting Wang

    (Brock University)

Abstract

In this paper, we re-examine various previous experimental studies of the Centipede Game in the literature. These experiments found that players rarely follow the subgame-perfect equilibrium strategies of the game, and various modifications to the game were proposed to explain the outcomes of the experiments. We here offer yet another modification. Players have a choice of whether or not to believe that their opponents use subgame-perfect equilibrium strategies. We define a `behavioral equilibrium' for this game. This equilibrium concept can reproduce the outcomes of those experiments.

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File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_1033.pdf
File Function: First version 2006
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Bibliographic Info

Paper provided by Queen's University, Department of Economics in its series Working Papers with number 1033.

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Length: 11 pages
Date of creation: Feb 2006
Date of revision:
Handle: RePEc:qed:wpaper:1033

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Keywords: centipede games; game theory; experimental economics; behavioral economics;

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  1. Richard Mckelvey & Thomas Palfrey, 1998. "Quantal Response Equilibria for Extensive Form Games," Experimental Economics, Springer, vol. 1(1), pages 9-41, June.
  2. Zauner, Klaus G., 1999. "A Payoff Uncertainty Explanation of Results in Experimental Centipede Games," Games and Economic Behavior, Elsevier, vol. 26(1), pages 157-185, January.
  3. Jacob K. Goeree & Charles A. Holt, 2000. "Ten Little Treasures of Game Theory and Ten Intuitive Contradictions," Virginia Economics Online Papers 333, University of Virginia, Department of Economics.
  4. Kaushik Basu, 2010. "Strategic Irrationality in Extensive Games," Levine's Working Paper Archive 375, David K. Levine.
  5. Tirole, Jean, 2002. "Rational irrationality: Some economics of self-management," European Economic Review, Elsevier, vol. 46(4-5), pages 633-655, May.
  6. Rosenthal, Robert W., 1981. "Games of perfect information, predatory pricing and the chain-store paradox," Journal of Economic Theory, Elsevier, vol. 25(1), pages 92-100, August.
  7. Caplan, Bryan, 2001. " Rational Irrationality and the Microfoundations of Political Failure," Public Choice, Springer, vol. 107(3-4), pages 311-31, June.
  8. McKelvey, Richard D & Palfrey, Thomas R, 1992. "An Experimental Study of the Centipede Game," Econometrica, Econometric Society, vol. 60(4), pages 803-36, July.
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