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Cognitive hierarchies and the centipede game

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  • Bottero, Margherita

    () (Dept. of Economics, Stockholm School of Economics)

Abstract

In the present work, I adopt the cognitive hierarchy approach to analyze the centipede game. To this end, I present and study an extensive-form version of Camerer et al.'s (2004) original normal-form model. The resulting predictions are evaluated empirically using laboratory data borrowed from a previously published experiment. The paper features two main contributions. First, it presents a parsimonious model that can, in principle, be generalized to any two-person extensive-form game of perfect information. Secondly, it demonstrates that in the centipede game the cognitive hierarchy approach leads to predictions which are not fully backwardly inductive and that can help to explain some key feature of the experimental data.

Suggested Citation

  • Bottero, Margherita, 2010. "Cognitive hierarchies and the centipede game," SSE/EFI Working Paper Series in Economics and Finance 723, Stockholm School of Economics, revised 01 Oct 2010.
  • Handle: RePEc:hhs:hastef:0723
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    Keywords

    centipede game; cognitive hierarchy; paradox backward induction; experimental data analysis;

    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
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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