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Rationalizing Irrational Beliefs

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  • Dunbar, Geoffrey
  • Tu, Juan
  • Wang, Ruqu

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.

Suggested Citation

  • Dunbar, Geoffrey & Tu, Juan & Wang, Ruqu, 2006. "Rationalizing Irrational Beliefs," Queen's Economics Department Working Papers 273503, Queen's University - Department of Economics.
    • Handle: RePEc:ags:quedwp:273503
    DOI: 10.22004/ag.econ.273503
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