Testing the Foundations of Quantal Response Equilibrium

Proceedings of the International Conference on Social Computing, Behavioral-Cultural Modeling & Prediction, 2013

10 Pages Posted: 27 Jan 2013  

Mathew D. McCubbins

Department of Political Science and Law School, Duke University

Mark B. Turner

Case Western Reserve University - Department of Cognitive Science

Nicholas Weller

University of California, Riverside (UCR)

Date Written: January 27, 2013

Abstract

Quantal response equilibrium (QRE) has become a popular alternative to the standard Nash equilibrium concept in game theoretic applications. It is well known that human subjects do not regularly choose Nash equilibrium strategies. It has been hypothesized that subjects are limited by strategic uncertainty or that subjects have broader social preferences over the outcome of games. These two factors, among others, make subjects boundedly-rational. QRE, in essence, adds a logistic error function to the strict, knife-edge predictions of Nash equilibria. What makes QRE appealing, however, also makes it very difficult to test, because almost any observed behavior may be consistent with different parameterizations of the error function. We present the first steps of a research program designed to strip away the underlying causes of the strategic errors thought to be modeled by QRE. If these causes of strategic error are correct explanations for the deviations, then their removal should enable subjects to choose Nash equilibrium strategies. We find, however, that subjects continue to deviate from predictions even when the reasons presumed by QRE are removed. Moreover, the deviations are different for each and every game, and thus QRE would require the same subjects to have different error parame-terizations. While we need more expansive testing of the various causes of stra-tegic error, in our judgment, therefore, QRE is not useful at predicting human behavior, and is of limited use in explaining human behavior across even a small range of similar decisions.

Keywords: bounded rationality, human behavior, Nash equilibrium, behavioral game theory, strategic uncertainty, social preferences, Quantal Response Equilibrium

Suggested Citation

McCubbins, Mathew D. and Turner, Mark B. and Weller, Nicholas, Testing the Foundations of Quantal Response Equilibrium (January 27, 2013). Proceedings of the International Conference on Social Computing, Behavioral-Cultural Modeling & Prediction, 2013. Available at SSRN: https://ssrn.com/abstract=2207636

Mathew D. McCubbins

Department of Political Science and Law School, Duke University ( email )

210 Science Drive
Box 90362
Durham, NC 27708
United States

Mark B. Turner

Case Western Reserve University - Department of Cognitive Science ( email )

10900 Euclid Avenue
Cleveland, OH 44106-7068
United States

HOME PAGE: http://markturner.org

Nicholas Weller (Contact Author)

University of California, Riverside (UCR) ( email )

900 University Avenue
Riverside, CA 92521
United States

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