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

Author

Listed:
  • Yves Breitmoser

    (Department of Economics, EUV Frankfurt (Oder))

  • Jonathan H. W. Tan

    (Nottingham University Business School)

  • Daniel John Zizzo

    (School of Economics and CBESS, University of East Anglia)

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.

Suggested Citation

  • Yves Breitmoser & Jonathan H. W. Tan & Daniel John Zizzo, 2010. "On the beliefs off the path: Equilibrium refinement due to quantal response and level-k," Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS) 10-05, School of Economics, University of East Anglia, Norwich, UK..
    • Handle: RePEc:uea:wcbess:10-05
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    More about this item

    Keywords

    incomplete information; equilibrium refinement; logit equilibrium; rationalizability; quantal response; level-k; inequity aversion; experiment;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D62 - Microeconomics - - Welfare Economics - - - Externalities

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