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

Author

Listed:
  • Alan Kirman

    (École des Hautes Études en Sciences Sociales, CAMS (Paris))

  • François Laisney

    (Zentrum für Europäische Wirtschaftsforschung (ZEW), Mannheim)

  • Paul Pezanis-Christou

    (School of Economics, University of Adelaide)

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.

Suggested Citation

  • Alan Kirman & François Laisney & Paul Pezanis-Christou, 2018. "Exploration vs Exploitation, Impulse Balance Equilibrium and a specification test for the El Farol bar problem," School of Economics and Public Policy Working Papers 2018-11, University of Adelaide, School of Economics and Public Policy.
    • Handle: RePEc:adl:wpaper:2018-11
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    File URL: https://media.adelaide.edu.au/economics/papers/doc/wp2018-11.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    congestion games; exploration vs exploitation; quantal response equilibrium; impulse balance equilibrium; specification test; experimental economics;
    All these keywords.

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior

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