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Non-equilibrium play in centipede games

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  • García-Pola, Bernardo
  • Iriberri, Nagore
  • Kovářík, Jaromír

Abstract

Centipede games represent a classic example of a strategic situation, where the equilibrium prediction is at odds with human behavior. This study is explicitly designed to discriminate among the proposed explanations for initial responses in centipede games. Using many different centipede games, our approach determines endogenously whether one or more explanations are empirically relevant. We find that non-equilibrium behavior is too heterogeneous to be explained by a single model. However, most non-equilibrium choices can be fully explained by level-k thinking and quantal response equilibrium but each model for different subjects. Preference-based models play a negligible role in explaining non-equilibrium play.

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  • García-Pola, Bernardo & Iriberri, Nagore & Kovářík, Jaromír, 2020. "Non-equilibrium play in centipede games," Games and Economic Behavior, Elsevier, vol. 120(C), pages 391-433.
  • Handle: RePEc:eee:gamebe:v:120:y:2020:i:c:p:391-433
    DOI: 10.1016/j.geb.2020.01.007
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    More about this item

    Keywords

    Centipede games; Bounded rationality; Common knowledge of rationality; Quantal response equilibrium; Level-k model; Experiments; Mixture-of-types models;
    All these keywords.

    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

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