Outline  Motivation and Modeling Philosophy  Empirical Alternative I: Model of Cognitive Hierarchy (Camerer, Ho, and Chong, QJE, 2004)  Empirical Alternative.

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Presentation transcript:

Outline  Motivation and Modeling Philosophy  Empirical Alternative I: Model of Cognitive Hierarchy (Camerer, Ho, and Chong, QJE, 2004)  Empirical Alternative II: Quantal Response Equilibrium (McKelvey and Palfrey, GEB, 1995)  Empirical Alternative III: Model of Noisy Introspection (Goeree and Holt, AER, 2001)

Modeling Principles PrincipleNash CH QRE NI Strategic Thinking     Best Response   Mutual Consistency  

Quantal Response Equilibrium Player i choosing strategy j with probability  ij in equilibrium. x ij is i’s expected payoff of choosing j given that others choose their strategy according to equilibrium profile . The values of  depends on.

Example 1 q (1-q) p (1-p)

Nash Equilibrium q (1-q) p (1-p) q = (1- q)  q = (1-p) = p  p = 0.5

Example 1: =2

Prediction as a Function of

Example 2

QRE Prediction: A = B = 5

QRE Prediction: A = B = 100

Lieberman’s 2-person Zero-sum Game

MLE Estimation

Best-fitted QRE Model

QRE Plots

O’Neill’s 2-person Zero-sum Game

QRE and its Special Cases

QRE Estimates Across Time

QRE Plots

Rapoport and Boebel’s 2-person Zero-sum Game

QRE Estimates; Experiment I

QRE Estimates: Experiment II

QRE Estimates Across Time

QRE Plots

Ochs’s 2-person Non-zero Sum Games

QRE Estimates

QRE Plots

QRE Estimates

Prediction

QRE Plots

QRE versus CH

Summary