SSE/EFI Working Paper Series in Economics and Finance
No 723:
Cognitive hierarchies and the centipede game
Margherita Bottero ()
Abstract: In the present work, I adopt the cognitive hierarchy
approach to analyze the centipede game. To this end, I present and study an
extensive-form version of Camerer et al.'s (2004) original normal-form
model. The resulting predictions are evaluated empirically using laboratory
data borrowed from a previously published experiment. The paper features
two main contributions. First, it presents a parsimonious model that can,
in principle, be generalized to any two-person extensive-form game of
perfect information. Secondly, it demonstrates that in the centipede game
the cognitive hierarchy approach leads to predictions which are not fully
backwardly inductive and that can help to explain some key feature of the
experimental data.
Keywords: centipede game; cognitive hierarchy; paradox backward induction; experimental data analysis; (follow links to similar papers)
JEL-Codes: C72; C92; D03; D81; (follow links to similar papers)
33 pages, January 19, 2010, Revised October 1, 2010
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