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Regular Quantal Response Equilibrium

Experimental Economics volume 8, pages 347–367 (2005)Cite this article

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.

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Author information

Authors and Affiliations

  1. Division of the Humanities and Social Sciences, California Institute of Technology, Mail code 228-77, Pasadena, CA, 91125, USA

    Jacob K. Goeree

  2. Department of Economics, University of Virginia, Charlottesville, VA, 22904-4182, USA

    Charles A. Holt

  3. Department of Economics, Princeton University, 112 Fisher Hall, Princeton, NJ, 08540, USA

    Thomas R. Palfrey

Authors
  1. Jacob K. Goeree
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  2. Charles A. Holt
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  3. Thomas R. Palfrey
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JEL Classification: D62, C73

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Goeree, J.K., Holt, C.A. & Palfrey, T.R. Regular Quantal Response Equilibrium. Exp Econ 8, 347–367 (2005). https://doi.org/10.1007/s10683-005-5374-7

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  • DOI: https://doi.org/10.1007/s10683-005-5374-7

Keywords

  • quantal response equilibrium
  • discrete choice models
  • reduced-form approach