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Limited backward induction: foresight and behavior in sequential games

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  • Marco Mantovani

Abstract

The paper tests experimentally for limited foresight in sequential games. We develop a general out-of-equilibrium framework of strategic thinking based on limited foresight. It assumes the players take decisions focusing on close-by nodes, following backward induction – what we call limited backward induction (LBI). The main prediction of the model is tested in the context of a modified Game of 21. In line with the theoretical hypotheses, our results show most players think strategically only on close-by nodes without reasoning backwards from the end of the game. A small fraction of subjects play close to equilibrium, while few others try to exploit the limited foresight of their opponent. The results provide strong support for LBI, and cannot be accounted for using the most popular models of strategic thinking, let alone equilibrium analysis.

Suggested Citation

  • Marco Mantovani, 2015. "Limited backward induction: foresight and behavior in sequential games," Working Papers 289, University of Milano-Bicocca, Department of Economics, revised Jan 2015.
  • Handle: RePEc:mib:wpaper:289
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    File URL: http://dems.unimib.it/repec/pdf/mibwpaper289.pdf
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    References listed on IDEAS

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    Cited by:

    1. Martin Dufwenberg & Matt Van Essen, 2016. "King of the Hill: Giving Backward Induction its Best Shot," CESifo Working Paper Series 6169, CESifo Group Munich.
    2. Matthew Embrey & Guillaume R. Frechette & Sevgi Yuksel, 2016. "Cooperation in the Finitely Repeated Prisoner's Dilemma," Working Paper Series 08616, Department of Economics, University of Sussex.

    More about this item

    Keywords

    Behavioral game theory; sequential games; strategic thinking; level-k; limited foresight.;

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

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