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Backward Induction Or Forward Reasoning? – An Experiment Of Stochastic Alternating Offer Bargaining

Author

Listed:
  • SIEGFRIED K. BERNINGHAUS

    (Institute for Economic Theory and Statistics, Karlsruhe Institute of Technology, 76049 Karlsruhe, Germany)

  • WERNER GÜTH

    (Strategic Interaction Group, Max Planck Institute of Economics, 07745 Jena, Germany)

  • STEPHAN SCHOSSER

    (Chair of Empirical Economics, University of Magdeburg, 39106 Magdeburg, Germany)

Abstract

Bounded rationality questions backward induction without necessarily excluding such reasoning when anticipation is easy. In our stochastic (alternating offer) bargaining experiment, there is a certain first-period pie and a known finite deadline. What is uncertain (except for the final period) is whether there is a further period. Whereas backward induction requires information about all later pie sizes and probabilities, forward reasoning is expected to rely on reasoning for which only the immediate prospects may be relevant. Rather than relying only on decision data, we assess forward reasoning by control of information retrieval before the first move. Participants begin with the shortest games before playing possibly longer games. Surprisingly they rely on forward reasoning already for the shortest game as revealed by their information retrieval and choice data.

Suggested Citation

  • Siegfried K. Berninghaus & Werner Güth & Stephan Schosser, 2014. "Backward Induction Or Forward Reasoning? – An Experiment Of Stochastic Alternating Offer Bargaining," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 16(01), pages 1-30.
    • Handle: RePEc:wsi:igtrxx:v:16:y:2014:i:01:n:s0219198914400052
    DOI: 10.1142/S0219198914400052
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    References listed on IDEAS

    as
    1. Avrahami, Judith & Güth, Werner & Hertwig, Ralph & Kareev, Yaakov & Otsubo, Hironori, 2013. "Learning (not) to yield: An experimental study of evolving ultimatum game behavior," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 47(C), pages 47-54.
    2. Katrin Schmelz, 2011. "E-nstructions: A Tool for Electronic Instructions in Laboratory Experiments," Jena Economics Research Papers 2011-008, Friedrich-Schiller-University Jena.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Backward induction; forward reasoning; bargaining; experimental analysis; D03; D50; D82;
    All these keywords.

    JEL classification:

    • B4 - Schools of Economic Thought and Methodology - - Economic Methodology
    • C0 - Mathematical and Quantitative Methods - - General
    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • D7 - Microeconomics - - Analysis of Collective Decision-Making
    • M2 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics

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