Quantal response equilibrium in a double auction
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- Neri, C. Econ Theory Bull (2015) 3: 79. doi:10.1007/s40505-014-0038-4
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This paper establishes existence and uniqueness of Quantal Response Equilibrium (QRE) in a double auction. The concept of QRE has the intuitive property that a deviation from best response is less likely the higher the cost associated with the deviation itself. Thanks to such property, the QRE accommodates stochastic elements in the analysis of the strategic decision-making that arises in the double auction. By providing a theoretical alternative to the Bayesian Nash Equilibrium model, the QRE model offers an appealing tool for analyzing data of double auction experiments.