Testing psychological forward induction and the updating of beliefs in the lost wallet game

Daniel Woods, Maroš Servátka*

*Corresponding author for this work

Research output: Contribution to journalArticle

4 Citations (Scopus)

Abstract

This paper studies psychological forward induction and the updating of beliefs in the lost wallet game (Dufwenberg & Gneezy, 2000), which is required to derive a prediction for guilt averse agents. Our experiment tests whether the second movers psychologically induct forward and update their beliefs after observing their paired first mover's decision by eliciting beliefs with different second mover knowledge of first mover decision, depending on treatment. We find that second movers do update their beliefs conditional on receiving information on the first mover's action, supporting psychological forward induction.

Original languageEnglish
Pages (from-to)116-125
Number of pages10
JournalJournal of Economic Psychology
Volume56
DOIs
Publication statusPublished - 1 Oct 2016

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