The Logit Equilibrium: A Perspective on Intuitive Behavioral Anomalies

Simon Anderson, Jacob Goeree and Charles Holt

Virginia Economics Online Papers from University of Virginia, Department of Economics

Abstract: This paper considers a class of models in which rank-based payoffs are sensitive to small amounts of noise in decision making. Examples include auction, price-competition, coordination, and location games. Observed laboratory behavior in these games is often responsive to asymmetric costs associated with deviations from the Nash equilibrium. These payoff asymmetry effects are incorporated in an approach that introduces noisy behavior via probabilistic choice. In equilibrium, behavior is characterized by a probability distribution that satisfies a "rational expectations" consistency condition: the beliefs that determine player's expected payoffs match the decision distributions that arise from applying a logit probabilistic choice function to those expected payoffs. We prove existence of a unique, symmetric logit (quantal response) equilibrium and derive comparative statics results. The paper provides a unified perspective on many recent laboratory studies of games in which Nash equilibrium predictions are inconsistent with both intuition and experimental evidence.

Keywords: logit equilibrium; quantal response equilibrium; probabilistic choice; auctions. (search for similar items in EconPapers)
Pages: 40 pages JEL Classification: C72, C92.
Date: 1999-11
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Citations: View citations in EconPapers (13)

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http://repec.as.virginia.edu/RePEc/vir/virpap/papers/virpap332.pdf (application/pdf)

Related works:
Journal Article: The Logit Equilibrium: A Perspective on Intuitive Behavioral Anomalies (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:vir:virpap:332

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