Ignoring the Rationality of Others: Evidence from Experimental Normal-Form Games

Abstract

In this paper, two models of two-person normal-form game play behavior are presented and estimated, using three experimental data sets. The models are variants of the Quantal Response Equilibrium model defined by McKelvey and Palfrey (1995, "Games and Economic Behavior"), and allow a player to hold inaccurate beliefs about the behavior of her opponent. Each model involves two parameters: One captures the player's own level of response rationality, the other the level she attributes to her opponent. In order to allow for type heterogeneity among the subjects in the experiments, parametric distributions of these parameters are assumed. The estimation results indicate that in all three data sets the subjects' choices follow a specific anomalous pattern: On average, subjects play as if they significantly underestimated their opponent's rationality.

Keywords: beliefs, prediction accuracy, experiments, quantal response equilibrium

JEL Classification: C23, C91