Cycles of learning in the centipede game

This paper studies the evolutionary properties of the Centipede Game. For t his game, the use of backward induction as a model of rational behavior has been consistently challenged by the experimental evidence. Our claim is th at backward induction can still accurately predict the players' behavior, p rovided that they are given time enough to appreciate the strategic environ ment in which they operate. We support this claim by proving convergence to the backward induction solution for all continuous-time monotonic selectio n dynamics. However, we also show that this solution is intrinsically unsta ble, and how this instability is positively related to the length of the ga me. Journal of Economic Literature Classification Numbers: C72, C79. (C) 20 00 Academic Press.