Testing the Quantal Response Hypothesis

International Economic Review, Volume 60, Issue 1, February 2019, Pages 53-74

22 Pages Posted: 17 Mar 2016 Last revised: 22 Feb 2019

See all articles by Emerson Melo

Emerson Melo

Indiana University Bloomington

Kirill Pogorelskiy

University of Warwick - Department of Economics

Matthew Shum

California Institute of Technology

Multiple version iconThere are 2 versions of this paper

Date Written: March 22, 2018

Abstract

We develop a non-parametric test for consistency of player behavior with the Quantal Response Equilibrium (QRE). The test exploits a characterization of the equilibrium choice probabilities in any structural QRE as the gradient of a convex function; thereby QRE-consistent choices satisfy the cyclic monotonicity inequalities. Our testing procedure utilizes recent econometric results for moment inequality models. We assess our test using lab experimental data from a series of generalized matching pennies games. We reject the QRE hypothesis in the pooled data but cannot reject individual-level quantal response behavior for over half of the subjects.

Keywords: quantal response equilibrium, behavioral game theory, cyclic monotonicity, moment inequalities, experimental economics

JEL Classification: C12, C14, C57, C72, C92

Suggested Citation

Melo, Emerson and Pogorelskiy, Kirill and Shum, Matthew, Testing the Quantal Response Hypothesis (March 22, 2018). International Economic Review, Volume 60, Issue 1, February 2019, Pages 53-74. Available at SSRN: https://ssrn.com/abstract=2602953 or http://dx.doi.org/10.2139/ssrn.2602953

Emerson Melo

Indiana University Bloomington ( email )

100 South Indiana Ave.
Bloomington, IN 47405
United States

Kirill Pogorelskiy (Contact Author)

University of Warwick - Department of Economics ( email )

Coventry CV4 7AL
United Kingdom

HOME PAGE: http://warwick.ac.uk/kbp

Matthew Shum

California Institute of Technology ( email )

Pasadena, CA 91125
United States

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