Equilibrium Play and Adaptive Learning in a Three-Person Centipede Game

27 Pages Posted: 15 Oct 2004 Last revised: 11 Jan 2009

See all articles by Amnon Rapoport

Amnon Rapoport

University of Arizona - Eller College of Management

William E. Stein

Texas A&M University - Mays Business School

James E. Parco

Colorado College

Thomas Nicholas

University of Arizona - Department of Management and Organizations

Abstract

The two-person centipede game is one of the most celebrated paradoxes of backward induction in complete information extensive form games. An experimental investigation of a three-person centipede game shows that the paradoxical results are strongly affected by the size of the stakes. When the number of players in the game is increased from two to three and the game is played for unusually high stakes with group composition being randomly changed from trial to trial, the paradox is considerably weakened as players approach equilibrium play with multiple iterations of the stage game. When the game is played with low stakes, there is no evidence for equilibrium play or learning across iterations of the stage game. An adaptive learning model that assumes updating of the individual probabilities of choice outperforms alternative static and dynamic models in accounting for the major results observed in the high-stake experiment.

Keywords: Game, Backward induction, experimental study, high vs. low stakes, adaptive learning

JEL Classification: C92, D81

Suggested Citation

Rapoport, Amnon and Stein, William E. and Parco, Jim and Nicholas, Thomas, Equilibrium Play and Adaptive Learning in a Three-Person Centipede Game. Games and Economic Behavior, Vol. 43, pp. 239-265, 2003. Available at SSRN: https://ssrn.com/abstract=605121

Amnon Rapoport

University of Arizona - Eller College of Management ( email )

McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States
520-621-9325 (Phone)
520-621-4171 (Fax)

William E. Stein

Texas A&M University - Mays Business School ( email )

INFO Dept.
MS4217
College Station, TX 77843-4217
United States
979-845-4339 (Phone)

Jim Parco (Contact Author)

Colorado College ( email )

Department of Economics and Business
14 E. Cache la Poudre St.
Colorado Springs, CO 80903
United States
719-389-6416 (Phone)
719-389-6927 (Fax)

HOME PAGE: http://www.coloradocollege.edu/dept/EC/parco.asp

Thomas Nicholas

University of Arizona - Department of Management and Organizations ( email )

405 McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States

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