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

Eric J. Johnson, Colin Camerer (), Sankar Sen and Talia Rymon

No 1040, Working Papers from California Institute of Technology, Division of the Humanities and Social Sciences

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.

Pages: 38 pages
Date: 1998-06
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Published: Journal of Economic Theory , Vol. 104, (2002), 6-47

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Journal Article: Detecting Failures of Backward Induction: Monitoring Information Search in Sequential Bargaining (2002)
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