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

Yves Breitmoser (), Jonathan Tan and Daniel Zizzo

No 10-05, Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS) from School of Economics, University of East Anglia, Norwich, UK.

Abstract: This paper studies the relevance of equilibrium and nonequilibrium explanations of behavior, with respects to equilibrium refinement, as players gain experience. We investigate this experimentally using an incomplete information sequential move game with heterogeneous preferences and multiple perfect equilibria. Only the limit point of quantal response (the limiting logit equilibrium), and alternatively that of level-k reasoning (extensive form rationalizability), restricts beliefs off the equilibrium path. Both concepts converge to the same unique equilibrium, but the predictions differ prior to convergence. We show that with experience of repeated play in relatively constant environments, subjects approach equilibrium via the quantal response learning path. With experience spanning also across relatively novel environments, though, level-k reasoning tends to dominate.

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: 2010-03-01
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Related works:
Journal Article: On the beliefs off the path: Equilibrium refinement due to quantal response and level-k (2014)
Working Paper: On the Beliefs off the Path: Equilibrium Refinement due to Quantal Response and Level-k* (2010)
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