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Testing psychological forward induction and the updating of beliefs in the lost wallet game

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  • Woods, Daniel
  • Servátka, Maroš

Abstract

This paper studies psychological forward induction and the updating of beliefs in the lost wallet game (Dufwenberg & Gneezy, 2000), which is required to derive a prediction for guilt averse agents. Our experiment tests whether the second movers psychologically induct forward and update their beliefs after observing their paired first mover's decision by eliciting beliefs with different second mover knowledge of first mover decision, depending on treatment. We find that second movers do update their beliefs conditional on receiving information on the first mover’s action, supporting psychological forward induction.

Suggested Citation

  • Woods, Daniel & Servátka, Maroš, 2016. "Testing psychological forward induction and the updating of beliefs in the lost wallet game," Journal of Economic Psychology, Elsevier, vol. 56(C), pages 116-125.
  • Handle: RePEc:eee:joepsy:v:56:y:2016:i:c:p:116-125
    DOI: 10.1016/j.joep.2016.06.006
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    Cited by:

    1. Woods, Daniel & Servátka, Maroš, 2016. "Nice to You, Nicer to Me: Does Self-Serving Generosity Diminish the Reciprocal Response?," MPRA Paper 74565, University Library of Munich, Germany.

    More about this item

    Keywords

    Beliefs; Experiment; Guilt aversion; Lost wallet game; Psychological forward induction; Updating;

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

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