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Rationalizing Irrational Beliefs

Author

Listed:
  • Geoffrey Dunbar

    (Simon Fraser University)

  • Juan Tu

    (Queen's University)

  • Xiaoting Wang

    (Brock University)

  • Ruqu Wang

Abstract

In this paper, we re-examine various previous experimental studies of theCentipede 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 yetanother modification. Players have a choice of whether or not to believe that their opponents use subgame-perfect equilibrium strategies. We define a `behavioral equilibrium' forthis game. This equilibrium concept can reproduce the outcomes of those experiments.

Suggested Citation

  • Geoffrey Dunbar & Juan Tu & Xiaoting Wang & Ruqu Wang, 2006. "Rationalizing Irrational Beliefs," Working Paper 1033, Economics Department, Queen's University.
    • Handle: RePEc:qed:wpaper:1033
    as

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    File URL: https://www.econ.queensu.ca/sites/econ.queensu.ca/files/qed_wp_1033.pdf
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    References listed on IDEAS

    as
    1. 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.
    2. Richard Mckelvey & Thomas Palfrey, 1998. "Quantal Response Equilibria for Extensive Form Games," Experimental Economics, Springer;Economic Science Association, vol. 1(1), pages 9-41, June.
    3. Tirole, Jean, 2002. "Rational irrationality: Some economics of self-management," European Economic Review, Elsevier, vol. 46(4-5), pages 633-655, May.
    4. Basu, Kaushik, 1988. "Strategic irrationality in extensive games," Mathematical Social Sciences, Elsevier, vol. 15(3), pages 247-260, June.
    5. McKelvey, Richard D & Palfrey, Thomas R, 1992. "An Experimental Study of the Centipede Game," Econometrica, Econometric Society, vol. 60(4), pages 803-836, July.
    6. Jacob K. Goeree & Charles A. Holt, 2001. "Ten Little Treasures of Game Theory and Ten Intuitive Contradictions," American Economic Review, American Economic Association, vol. 91(5), pages 1402-1422, December.
    7. 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.
    8. Caplan, Bryan, 2001. "Rational Irrationality and the Microfoundations of Political Failure," Public Choice, Springer, vol. 107(3-4), pages 311-331, June.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    centipede games; game theory; experimental economics; behavioral economics;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

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