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Published July 2009 | public
Journal Article

Heterogeneous quantal response equilibrium and cognitive hierarchies

Abstract

We explore an equilibrium model of games where behavior is given by logit response functions, but payoff responsiveness and beliefs about others' responsiveness are heterogeneous. We study two substantively different ways of extending quantal response equilibrium (QRE) to this setting: (1) Heterogeneus QRE, where players share identical correct beliefs about the distribution of payoff responsiveness; and (2) Truncated QRE, where players have downward looking beliefs, systematically underestimating others' responsiveness. We show that the cognitive hierarchy model is a special case of Truncated QRE. We conduct experiments designed to differentiate these approaches. We find significant evidence of payoff responsive stochastic choice, and of heterogeneity and downward looking beliefs in some games.

Additional Information

Copyright © 2009 Elsevier. Received 16 March 2007; revised 2 July 2008; accepted 5 November 2008. Available online 25 December 2008. We are grateful to the National Science Foundation (SES-0450712 and SES-0617820) for supporting this research. We thank audiences at Collège de France, New York University, The Ohio State University, Universitat Autonoma de Barcelona, University of Pennsylvania, University of Southern California, the 2006 ESA North American Meeting, and the 2007 AEA Annual Meeting and two referees for helpful comments.

Additional details

Created:
August 21, 2023
Modified:
October 18, 2023