Classical and team reasoning in the Centipede Game

Abstract

AbstractThis study analyses behaviour in non‐zero‐sum finite multi‐stage games, particularly the Centipede Game. The classical Nash Equilibrium fails to explain empirical behaviour and intuitive logic and has therefore been challenged. This paper introduces the ‘Pure Collective Equilibrium’, or PCE, which describes the equilibrium reached when agents assess their utility not by their own payoffs but by the mean collective payoff of the team, as outlined by some team‐reasoning hypotheses. Classical behaviour and purely collective team reasoning then both represent special cases—the first in which agents and their counterparts are on the Nash Equilibrium path, and the second in which agents and their counterparts are purely collective team reasoners. It is argued that agents intentionally and consistently deviate from classical rationality in the Centipede Game, even in the absence of philanthropic altruists or error‐plagued populations.