Question

Describe the Centipede game, its game theoretic solution as well as key findings from experimental studies wherein participants play the Centipede game.

Answer 1

Centipede game is when two players take turns to choose either a slightly larger share of a pie which is increasing or to pass it to the other player. The game theory solution is that if one passes the pot to the opponent and if he takes the pot in the subsequent round, he receives slightly less than if he would have taken on this round.

The crux of this theory is that first player takes the pot in the first round, however when the experiment is conducted, very few do so, and they achieve a higher payoff.

An example of this game is suppose Max and Dan are two players. Max moves first, he has 5 coins and another pile of 2 coins. Max and Dan have two moves available i.e. take large pile and give the small pile to the other player, or push both piles to the other player. If Max pushes the piles to Dan, the coins double i.e Dan gets 10 and 4 coins.

Thus key findings are that Nash equilibrium is rarely observed. Players show partial cooperation for several moves. They rarely cooperate through the whole game. Thereby getting a smaller payoff. Players distrust each other and that is why both do worse than if they had cooperated.