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Belief and Higher-Order Belief in the Centipede Games: An Experimental Investigation

Author

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  • Yun Wang

    (Xiamen University)

Abstract

This paper experimentally explores epistemic conditions behind the subgame perfect equilibrium (SPNE) of centipede games. We propose a novel design of laboratory experiment to elicit subjects’ beliefs regarding their opponents’ strategies and 1st-order beliefs. The measured beliefs, together with the choice data, help us to estimate each subject’s level of rationality, belief of rationality, and 2nd-order belief of rationality. We consider two experimental treatments: the classic centipede game in which an efficient non-equilibrium outcome exists, and its constant-sum variation. Data shows that, in the classic centipede treatment, fewer subjects behave rationally; meanwhile, subjects are less likely to believe in their opponents’ rationality and belief of rationality. Furthermore, in the constant-sum centipede treatment, there is a non-trivial portion of subjects who behave rationally, believe in others’ rationality, and hold 2nd-order belief of rationality. Our results indicate that the efficiency property of the classic centipede game may lead to subjects’ non-equilibrium behavior by diffusing their beliefs and higher-order beliefs.

Suggested Citation

  • Yun Wang, 2016. "Belief and Higher-Order Belief in the Centipede Games: An Experimental Investigation," Working Papers 2018-11-03, Wang Yanan Institute for Studies in Economics (WISE), Xiamen University, revised 03 Feb 2016.
  • Handle: RePEc:wyi:wpaper:002388
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    More about this item

    Keywords

    Centipede Game; Rationality; Belief of Rationality; Higher Order Belief; Experimental Economics; Laboratory Experiments;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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