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Detecting Failures of Backward Induction: Monitoring Information Search in Sequential Bargaining

Author

Listed:
  • Johnson, Eric J.
  • Camerer, Colin
  • Sen, Sankar
  • Rymon, Talia

Abstract

We ran three-round sequential bargaining experiments in which the perfect equilibrium offer was $1.25 and an equal split was $2.50. Subjects offered $2.11 to other subjects, $1.84 to "robot" players (who are known to play subgame perfectly), and $1.22 to robots after instruction in backward induction. Measures of information search showed that subjects did not look at the amounts being divided in different rounds in the correct order, and for the length of time, necessary for backward induction, unless they were specifically instructed. The results suggest that most of the departure from perfect equilibrium is due to limited computation and some is due to fairness.

Suggested Citation

  • Johnson, Eric J. & Camerer, Colin & Sen, Sankar & Rymon, Talia, 1998. "Detecting Failures of Backward Induction: Monitoring Information Search in Sequential Bargaining," Working Papers 1040, California Institute of Technology, Division of the Humanities and Social Sciences.
  • Handle: RePEc:clt:sswopa:1040
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    File URL: http://www.hss.caltech.edu/SSPapers/wp1040.pdf
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    Cited by:

    1. Giovanna Devetag & Andreas Ortmann, 2007. "When and why? A critical survey on coordination failure in the laboratory," Experimental Economics, Springer;Economic Science Association, vol. 10(3), pages 331-344, September.
    2. Robert Slonim, 2005. "Competing Against Experienced and Inexperienced Players," Experimental Economics, Springer;Economic Science Association, vol. 8(1), pages 55-75, April.
    3. Vincent P. Crawford & Miguel A. Costa-Gomes, 2006. "Cognition and Behavior in Two-Person Guessing Games: An Experimental Study," American Economic Review, American Economic Association, vol. 96(5), pages 1737-1768, December.
    4. Harrison, Glenn W., 2008. "Neuroeconomics: A Critical Reconsideration," Economics and Philosophy, Cambridge University Press, vol. 24(03), pages 303-344, November.
    5. Frédéric Koessler & Charles Noussair & Anthony Ziegelmeyer, 2007. "Information Aggregation and Beliefs in Experimental Parimutuel Betting Markets," Papers on Strategic Interaction 2005-12, Max Planck Institute of Economics, Strategic Interaction Group.
    6. Robert Gazzale & Tapan Khopkar, 2011. "Remain silent and ye shall suffer: seller exploitation of reticent buyers in an experimental reputation system," Experimental Economics, Springer;Economic Science Association, vol. 14(2), pages 273-285, May.

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