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Exploration vs Exploitation, Impulse Balance Equilibrium and a specification test for the El Farol bar problem

Alan Kirman (), Francois Laisney () and Paul Pezanis-Christou ()

No 2018-11, School of Economics Working Papers from University of Adelaide, School of Economics

Abstract: The paper reports on market-entry experiments that manipulate both payoff structures and payoff levels to assess two stationary models of behaviour: Exploration vs Exploitation (EvE, which is equivalent to Quantal Response Equilibrium) and Impulse Balance Equilibrium (IBE). These models explain the data equally well in terms of goodness-of-fit whenever the observed probability of entry is less than the symmetric Nash equilibrium prediction; otherwise IBE marginally outperforms EvE. When assuming agents playing symmetric strategies, and estimating the models with session data, IBE yields more theory-consistent estimates than EvE, no matter the payoff structure or level. However, the opposite occurs when the symmetry assumption is relaxed. The conduct of a specification test rejects the validity of the restrictions on entry probabilities imposed by EvE for agents with symmetric strategies, in 50 to 75% of sessions and it always rejects it in the case of IBE, which indicates that the symmetric variant of these models have little empirical support.

Keywords: congestion games; exploration vs exploitation; quantal response equilibrium; impulse balance equilibrium; specification test; experimental economics (search for similar items in EconPapers)
JEL-codes: C7 C92 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-gth
Date: 2018-08
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Working Paper: Exploration vs exploitation, impulse balance equilibrium, and a specification test for the El Farol bar problem (2018) Downloads
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