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Bounded Rationality

Author(s): 
Toshiji Kawagoe and Hirokazu Takizawa
日付: 
Fri, 2008-10-24
Abstract: 
The centipede game is one of the most celebrated examples of the paradox of backward induction. Experiments of the centipede game have been conducted in various settings: two-person games with linearly increasing payoffs (McKelvey and Palfrey, 1992), two-person games with constant-sum payoffs (Fey, McKelvey and Palfrey, 1996) and three-person games (Rapoport et al. 2003). The deviations from the subgame-perfect equilibrium prediction observed in laboratories have so far been attributed to some kind of fairness concern or altruism of the subjects. This paper attempts to offer another explanation for the observed deviations by using level-k analysis, a non-equilibrium model of strategic thinking. We show that level-k analysis gives consistently good predictions for the results of experimental centipede games. The results suggest that experimental results of centipede games be explained without invoking fairness or altruism.
Author(s): 
Toshiji Kawagoe and Hirokazu Takizawa
日付: 
Wed, 2007-08-01
Abstract: 

We conduct experiments of a cheap-talk game with incomplete information in which one sender type has an incentive to misrepresent her type. Although that Sender type mostly lies in the experiments, the Receiver tends to believe the Sender's messages. This confirms "truth bias" reported in communication theory in a one-shot, anonymous environment without nonverbal cues. These results cannot be explained by existing refinement theories, while a bounded rationality model explains them under certain conditions. We claim that the theory for the evolution of language should address why truthful communication survives in the environment in which lying succeeds.