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level-k analysis

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: 
Mon, 2008-03-10
Abstract: 

We present the experimental results of cheap-talk games with private information. We systematically compare various equilibrium refinement theories and bounded rationality models such as level-k analysis in explaining our experimental data. As in the previous literature, we find that when interests between sender and receiver are aligned, informative communication arises frequently. While babbling equilibrium play is observed more frequently in conflictive interest cases, a substantial number of players show a tendency to choose truth-telling and credulous play. We also find that level-k analysis outperforms equilibrium refinement theories in explaining this phenomenon. Our results also confirm the existence of the “truth bias” and “truth-detection bias” reported in communication theory.