Nash equilibria of the centipede game

Reference no: EM131253034

Nash equilibria of the centipede game:-

Show that the outcome of every Nash equilibrium of this game is the same as the outcome of the unique subgame perfect equilibrium (i.e. player 1 stops the game immediately). The logic that in the only steady state player 1 stops the game immediately is unassailable. Yet this pattern of behavior is intuitively unappealing, especially if the number k of periods is large.

The optimality of player 1's choosing to stop the game depends on her believing that if she continues, then player 2 will stop the game in period 2. Further, player 2's decision to stop the game in period 2 depends on her believing that if she continues then player 1 will stop the game in period 3. Each decision to stop the game is based on similar considerations.

Consider a player who has to choose an action in period 21 of a 100-period game, after each player has continued in the first 20 periods. Is she likely to consider the first 20 decisions-half of which were hers-"mistakes"?

Or will these decisions induce her to doubt that the other player will stop the game in the next period? These questions have no easy answers; some experimental evidence is discussed in the accompanying box.

Reference no: EM131253034

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