Rationalizing Irrational Beliefs

QED Working Paper Number
1033

In this paper, we re-examine various previous experimental studies of the Centipede Game in the literature. These experiments found that players rarely follow the subgame-perfect equilibrium strategies of the game, and various modifications to the game were proposed to explain the outcomes of the experiments. We here offer yet another modification. Players have a choice of whether or not to believe that their opponents use subgame-perfect equilibrium strategies. We define a `behavioral equilibrium' for this game. This equilibrium concept can reproduce the outcomes of those experiments.

Author(s)

Geoffrey Dunbar
Juan Tu
Xiaoting Wang

JEL Codes

Keywords

centipede games
game theory
experimental economics
behavioral economics

Working Paper

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