Individual and group decisions in the centipede game: Are groups more "rational" players?

Two experiments compared the Centipede game played either by 2 individuals or by 2 (3-person) groups. The 2 competitors alternate in deciding whether to take the larger portion of an increasing (or constant) pile of money, and as soon as one "takes" the game ends. Assuming that both sides are concerned only with maximizing their own payoffs (and that this is common knowledge), the game theoretic solution, derived by backward induction, is for the first mover to exit the game at the first decision node. Both experiments found that although neither individuals nor groups fully complied with this solution, groups did exit the game significantly earlier than individuals. The study of experimental games has uncovered many instances in which individuals deviate systematically from the game theoretic solution. This study is in accord with other recent experiments in suggesting that game theory may provide a better description of group behavior. (C) 2003 Elsevier Inc. All rights reserved.