DP11477 | Non-equilibrium Play in Centipede Games

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Centipede games represent a classic example of a strategic situation, where the equilibrium prediction is at odds with human behavior. This study is ex- plicitly designed to discriminate among the proposed explanations for initial responses in Centipede games. Using many different Centipede games, our ap- proach determines endogenously whether one or more explanations are empir- ically relevant. We find that non-equilibrium behavior is too heterogeneous to be explained by a single model. However, most non-equilibrium choices can be fully explained by level-k thinking and quantal response equilibrium, in roughly equal proportions. Preference-based models play a negligible role in explaining non-equilibrium play.