Quantal Response Equilibrium with Non-Monotone Probabilities: A Dynamic Approach

Abstract:     
In this paper I take a dynamic point of view and give an example of a population game and of a locally improving stochastic learning process such that the quantal response equilibrium assigns to the different strategies the probabilities that are non-monotone in the payoffs. Moreover, if the initial state probabilities are payoff-monotone, then the learning can be shown the shrink mistakes in one direction and exacerbate them in the other direction.

Keywords: quantal response equilibrium, diffusion equation

JEL Classifications: C73

Working Paper Series