Overt and Underlying Games: The Case of the Centipede

digital

Article

Magazine

RIVISTA INTERNAZIONALE DI SCIENZE SOCIALI

Fascicle

RIVISTA INTERNAZIONALE DI SCIENZE SOCIALI - 2010 - 1

Title

Overt and Underlying Games: The Case of the Centipede

Author

Carlo Beretta

Publisher

Vita e Pensiero

Format

Article |

Pdf

Online from

01-2010

Issn

0035-676X (print) | 1827-7918 (digital)

€ 6.00

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Description

Making use of and following substantive rationality is a costly and not always feasible option. In games, this option generates two levels of reasoning. The player has to decide how to play the overt game, but this requires him to decide how to play an underlying game in which the alternatives are to follow either substantive rationality or a different rule, here that of reasonableness, in playing the overt game. A strategy is reasonable if coupled with its best response it results in the player that adopts it achieving the highest payoff among those dominating the Nash equilibria of the overt game. The underlying game can have more than one equilibrium. Substantive rationality in the underlying game can justify behaviour which is at odds with substantively rational behaviour in the overt game. The case of the centipede is used as an example. Key words: Common knowledge, Rationality, Backward induction, Reasonableness, Incomplete information, Centipede game. JEL Classification: C72.