Non-equilibrium Play in Centipede Games

Nagore Iriberri, Jaromír Kovářík and Bernardo Garcia-Pola

No 11477, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Centipede games represent a classic example of a strategic situation, where the equilibrium prediction is at odds with human behavior. This study is explicitly designed to discriminate among the proposed explanations for initial responses in Centipede games. Using many different Centipede games, our approach determines endogenously whether one or more explanations are empirically relevant. We find that non-equilibrium behavior is too heterogeneous to be explained by a single model. However, most non-equilibrium choices can be fully explained by level-k thinking and quantal response equilibrium but each model for different subjects. Preference-based models play a negligible role in explaining non-equilibrium play.

Date: 2016-08
New Economics Papers: this item is included in nep-gth
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Journal Article: Non-equilibrium play in centipede games (2020)
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