Heterogeneous quantal response equilibrium and cognitive hierarchies

Brian W. Rogers, Thomas R. Palfrey and Colin F. Camerer

Journal of Economic Theory, 2009, vol. 144, issue 4, pages 1440-1467

Abstract: We explore an equilibrium model of games where behavior is given by logit response functions, but payoff responsiveness and beliefs about others' responsiveness are heterogeneous. We study two substantively different ways of extending quantal response equilibrium (QRE) to this setting: (1) Heterogeneus QRE, where players share identical correct beliefs about the distribution of payoff responsiveness; and (2) Truncated QRE, where players have downward looking beliefs, systematically underestimating others' responsiveness. We show that the cognitive hierarchy model is a special case of Truncated QRE. We conduct experiments designed to differentiate these approaches. We find significant evidence of payoff responsive stochastic choice, and of heterogeneity and downward looking beliefs in some games.

Keywords: Experimental; economics; Game; theory; Cognitive; hierarchy; Quantal; response; equilibrium; Bounded; rationality (search for similar items in EconPapers)
Date: 2009

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Persistent link: http://EconPapers.repec.org/RePEc:eee:jetheo:v:144:y:2009:i:4:p:1440-1467

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