Quantal Response Equilibrium with a Continuum of Types: Characterization and Nonparametric Identification

Evan Friedman; Duarte Gonçalves

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arXiv · 2307.08011

Quantal Response Equilibrium with a Continuum of Types: Characterization and Nonparametric Identification

Evan Friedman·Duarte Gonçalves

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Abstract

Quantal response equilibrium (QRE), a statistical generalization of Nash equilibrium, is a standard benchmark in the analysis of experimental data. Despite its influence, nonparametric characterizations and tests of QRE are unavailable beyond the case of finite games. We address this gap by completely characterizing the set of QRE in a class of binary-action games with a continuum of types. Our characterization provides sharp predictions in settings such as global games, volunteer's dilemma, and the compromise game. Further, we leverage our results to develop nonparametric tests of QRE. As an empirical application, we revisit the experimental data from Carrillo and Palfrey (2009) on the compromise game.

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Evan Friedman, Duarte Gonçalves. 2023-07-16. Quantal Response Equilibrium with a Continuum of Types: Characterization and Nonparametric Identification. https://arxiv.org/abs/2307.08011

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