Research ArticleOpen AccessGoogle Scholar indexed
Rationalizing Irrational Beliefs
International Economic Analysis Department, Bank of Canada, Ottawa, Canada
Economics Department, Queen’s University, Kingston, Canada
Department of Economics, Acadia University, Wolfville, Canada
Department of Economics, University of Ottawa, Ottawa, Canada
- 1 International Economic Analysis Department, Bank of Canada, Ottawa, Canada
- 2 Economics Department, Queen’s University, Kingston, Canada
- 3 Department of Economics, Acadia University, Wolfville, Canada
- 4 Department of Economics, University of Ottawa, Ottawa, Canada
Theoretical Economics Letters·Volume 06 (2016)·Pages 1219–1229·Published 11 November 2016·DOI10.4236/tel.2016.66115
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Abstract
In this paper we propose a “behavioral equilibrium” definition for a class of dynamic games of perfect information. We document various experimental studies of the Centipede Game in the literature that demonstrate that players rarely follow the subgame perfect equilibrium strategies. Although some theoretical modifications have been proposed to explain the outcomes of the experiments, we offer another: players can choose whether or not to believe that their opponents use subgame perfect equilibrium strategies. We define a “behavioral equilibrium” for this game; using this equilibrium concept, we can reproduce the outcomes of those experiments.
KeywordsCentipede GameGame TheoryExperimental EconomicsBehavioral Economics
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