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Regular Quantal Response Equilibrium

Published online by Cambridge University Press:  14 March 2025

Jacob K. Goeree ,
Charles A. Holt  and
Thomas R. Palfrey
Jacob K. Goeree
Affiliation:
Division of the Humanities and Social Sciences, California Institute of Technology, Mail code 228-77, Pasadena, CA 91125, USA
Charles A. Holt
Affiliation:
Department of Economics, University of Virginia, Charlottesville, VA 22904-4182, USA
Thomas R. Palfrey
Affiliation:
Department of Economics, Princeton University, 112 Fisher Hall, Princeton, NJ 08540, USA
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Abstract

The structural Quantal Response Equilibrium (QRE) generalizes the Nash equilibrium by augmenting payoffs with random elements that are not removed in some limit. This approach has been widely used both as a theoretical framework to study comparative statics of games and as an econometric framework to analyze experimental and field data. The framework of structural QRE is flexible: it can be applied to arbitrary finite games and incorporate very general error structures. Restrictions on the error structure are needed, however, to place testable restrictions on the data (Haile et al., 2004). This paper proposes a reduced-form approach, based on quantal response functions that replace the best-response functions underlying the Nash equilibrium. We define a regular QRE as a fixed point of quantal response functions that satisfies four axioms: continuity, interiority, responsiveness, and monotonicity. We show that these conditions are not vacuous and demonstrate with an example that they imply economically sensible restrictions on data consistent with laboratory observations. The reduced-form approach allows for a richer set of regular quantal response functions, which has proven useful for estimation purposes.

Keywords

quantal response equilibriumdiscrete choice modelsreduced-form approach

JEL classification

D62: Externalities C73: Stochastic and Dynamic Games • Evolutionary Games • Repeated Games
Type
Research Article
Information
Experimental Economics , Volume 8 , Issue 4: Exploring the Error in Experimental Economics , December 2005 , pp. 347 - 367
Copyright
Copyright © 2005 Economic Science Association

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