Exploration vs Exploitation, Impulse Balance Equilibrium, and a Specification Test for the El Farol Bar Problem

40 Pages Posted: 27 Aug 2018 Last revised: 24 May 2019

See all articles by Alan P. Kirman

Alan P. Kirman

CAMS EHESS; Aix Marseile University and Ecole des Hautes Etudes en Sciences Sociales

Francois Laisney

ZEW – Leibniz Centre for European Economic Research

Paul Pezanis-Christou

U. of Adelaide School of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: August 16, 2018

Abstract

The paper reports on market-entry experiments that manipulate both payoff structures and payoff levels to assess two stationary models of behaviour: Exploration vs Exploitation (EvE, which is equivalent to Quantal Response Equilibrium) and Impulse Balance Equilibrium (IBE). These models explain the data equally well in terms of goodness-of-fit whenever the observed probability of entry is less than the symmetric Nash equilibrium prediction; otherwise IBE marginally outperforms EvE. When assuming agents playing symmetric strategies, and estimating the models with session data, IBE yields more theory-consistent estimates than EvE, no matter the payoff structure or level. However, the opposite occurs when the symmetry assumption is relaxed. The conduct of a specification test rejects the validity of the restrictions on entry probabilities imposed by EvE for agents with symmetric strategies, in 50 to 75% of sessions and it always rejects it in the case of IBE, which indicates that the symmetric variant of these models has little empirical support.

Keywords: congestion games, exploration vs exploitation, quantal response equilibrium, impulse balance equilibrium, specification test, experimental economics

JEL Classification: C7, C92

Suggested Citation

Kirman, Alan P. and Kirman, Alan P. and Laisney, Francois and Pezanis-Christou, Paul, Exploration vs Exploitation, Impulse Balance Equilibrium, and a Specification Test for the El Farol Bar Problem (August 16, 2018). Available at SSRN: https://ssrn.com/abstract=3233147 or http://dx.doi.org/10.2139/ssrn.3233147

Alan P. Kirman

CAMS EHESS ( email )

190-198, avenue de France,
Paris, 75244
France
+33612241766 (Phone)

Aix Marseile University and Ecole des Hautes Etudes en Sciences Sociales ( email )

3 Avenue Robert Schuman,
France

Francois Laisney

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

Paul Pezanis-Christou (Contact Author)

U. of Adelaide School of Economics

Adelaide
Australia

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