Download This PaperTesting 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
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
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