i¿ k¡/i¿ analysis of experimental centipede games

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). Several models have been proposed for explaining the observed deviations from the subgame-perfect equilibrium prediction, which include models with fairness concern or altruism. Focusing on the initial responses, 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 experimental centipede games. The results suggest that experimental results of centipede games be explained without resorting to fairness concern or altruism