A Backward Induction Experiment |
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| Authors: | Ken BinmoreJohn McCarthy Giovanni PontiLarry Samuelson Avner Shaked |
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| Affiliation: | a Department of Economics, University College London, London, WC1E 6BT, United Kingdomf1Uctpa97@ucl.ac.ukf1b ELSE Experimental Laboratory, University College London, London, WC1E 6BT, United Kingdomc Department of Economics, University of Alicante, 03071, Alicante, Spainf2giuba@merlin.fae.ua.esf2d Department of Economics, University of Wisconsin, Madison, Wisconsin, 53706-1320, f3LarrySam@ssc.wisc.eduf3e Department of Economics, University of Bonn, Adenaurallee 24-26, Bonn, Germanyf4shaked@glider.econ3.uni-bonn.def4 |
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| Abstract: | This paper reports experiments with one-stage and two-stage alternating-offers bargaining games. Payoff-interdependent preferences have been suggested as an explanation for experimental results that are commonly inconsistent with players' maximizing their monetary payoffs and performing backward induction calculations. We examine whether, given payoff-interdependent preferences, players respect backward induction. To do this, we break backward induction into its components, subgame consistency and truncation consistency. We examine each by comparing the outcomes of two-stage bargaining games with one-stage games with varying rejection payoffs. We find and characterize systematic violations of both subgame and truncation consistency. Journal of Economic Literature Classification Numbers: C70, C78. |
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| Keywords: | bargaining experiments backward induction subgame-perfect equilibrium interdependent preferences |
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