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Detecting Failures of Backward Induction: Monitoring Information Search in Sequential Bargaining

Journal of Economic Theory, Vol. 104, No. 1, 2002
2002
  • 28
    Citations
  • 3,953
    Usage
  • 0
    Captures
  • 0
    Mentions
  • 0
    Social Media
Metric Options:   Counts1 Year3 Year

Metrics Details

  • Citations
    28
    • Citation Indexes
      28
  • Usage
    3,953
    • Abstract Views
      3,674
    • Downloads
      279
  • Ratings
    • Download Rank
      221,057

Paper Description

We did experiments in a three-round bargaining game where the (perfect) equilibrium offer was $1.25 and an equal split was $2.50. The average offer was $2.11. Patterns of information search (measured with a computerized information display) show limited lookahead rather than backward induction. Equilibrium theories which adjust for social utilities (reflecting inequality-aversion or reciprocity) cannot explain the results because they predict subjects will make equilibrium offers to "robot" players, but offers to robots are only a little lower. When trained subjects (who quickly learned to do backward induction) bargained with untrained subjects, offers ended up halfway between equilibrium and $2.11.

Bibliographic Details

Eric J. Johnson; Colin Camerer; Sankar Sen; Talia Rymon

bargaining; experimental economics; bounded rationality; behavioral economics; behavioral game theory; fairness; limited cognition

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