On the beliefs off the path: Equilibrium refinement due to quantal response and level-k

Yves Breitmoser (), Jonathan Tan and Daniel Zizzo

Games and Economic Behavior, 2014, vol. 86, issue C, 102-125

Abstract: The extensive form game we study has multiple perfect equilibria, but it has a unique limiting logit equilibrium (QRE) and a unique level-k prediction as k approaches infinity. The convergence paths of QRE and level-k are different, but they converge to the same limit point. We analyze whether subjects adapt beliefs when gaining experience, and if so whether they take the QRE or the level-k learning path. We estimate transitions between level-k and QRE belief rules using Markov-switching rule learning models. The analysis reveals that subjects take the level-k learning path and that they advance gradually, switching from level 1 to 2, from level 2 to equilibrium, and reverting to level 1 after observing opponents deviating from equilibrium. The steady state therefore contains a mixture of behavioral rules: levels 0, 1, 2, and equilibrium with weights of 2.9%, 16.6%, 37.9%, and 42.6%, respectively.

Keywords: Incomplete information; Equilibrium refinement; Logit equilibrium; Rationalizability; Quantal response; Level-k; Inequity aversion; Experiment (search for similar items in EconPapers)
JEL-codes: C72 C91 D62 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Related works:
Working Paper: On the Beliefs off the Path: Equilibrium Refinement due to Quantal Response and Level-k* (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:86:y:2014:i:c:p:102-125

DOI: 10.1016/j.geb.2014.03.002

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