Stochastic Choice and Noisy Beliefs in Games: an Experiment

Abstract

We conduct an experiment in which we elicit subjects’ beliefs over opponents’ behavior multiple times for a given game without feedback. We find that the large majority of individual subjects have stochastic belief reports, which we argue cannot be explained by learning or measurement error. Using both actions and beliefs data, we directly test the axioms underlying equilibrium models with “noisy actions” (quantal response equilibrium) and “noisy beliefs” (noisy belief equilibrium). We find that, while both types of noise are important in explaining observed behaviors, there are systematic violations of the axioms. We discuss possible explanations and some implications for modelling stochastic choice in games.

Keywords: beliefs, quantal response equilibrium, stochastic choice

JEL Classification: C72, C92, D84