Testing Psychological Forward Induction and the Updating of Beliefs in the Lost Wallet Game

Woods, Daniel and Servátka, Maroš (2016): Testing Psychological Forward Induction and the Updating of Beliefs in the Lost Wallet Game.

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 movers’ 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.

• Item Type: MPRA Paper
• Language: English
• Keywords: beliefs, experiment, guilt aversion, lost wallet game, psychological forward induction, updating
• Subjects: C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C70 - General; C - Mathematical and Quantitative Methods > C9 - Design of Experiments > C91 - Laboratory, Individual Behavior

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