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On The Empirical Content Of Quantal Response Equilibrium, Philip A. Haile, Ali Hortaçsu, Grigory Kosenok
On The Empirical Content Of Quantal Response Equilibrium, Philip A. Haile, Ali Hortaçsu, Grigory Kosenok
Cowles Foundation Discussion Papers
The quantal response equilibrium (QRE) notion of McKelvey and Palfrey (1995) has recently attracted considerable attention, due largely to its widely documented ability to rationalize observed behavior in games played by experimental subjects. We show that this ability to fit the data, as typically measured in this literature, is uninformative. Without a priori distributional assumptions, a QRE can match any distribution of behavior by each player in any normal form game. We discuss approaches that might be taken to provide valid empirical evaluation of the QRE and discuss its potential value as an approximating empirical structure.
On The Empirical Content Of Quantal Response Equilibrium, Philip A. Haile, Ali Hortaçsu, Grigory Kosenok
On The Empirical Content Of Quantal Response Equilibrium, Philip A. Haile, Ali Hortaçsu, Grigory Kosenok
Cowles Foundation Discussion Papers
The quantal response equilibrium (QRE) notion of McKelvey and Palfrey (1995) has recently attracted considerable attention, due in part to its widely documented ability to rationalize observed behavior in games played by experimental subjects. However, even with strong a priori restrictions on unobservables, QRE imposes no falsifiable restrictions: it can rationalize any distribution of behavior in any normal form game. After demonstrating this, we discuss several approaches to testing QRE under additional maintained assumptions.
The Strong Law Of Demand, Donald J. Brown, Caterina Calsamiglia
The Strong Law Of Demand, Donald J. Brown, Caterina Calsamiglia
Cowles Foundation Discussion Papers
We show that a demand function is derived from maximizing a quasilinear utility function subject to a budget constraint if and only if the demand function is cyclically monotone. On finite data sets consisting of pairs of market prices and consumption vectors, this result is equivalent to a solution of the Afriat inequalities where all the marginal utilities of income are equal. We explore the implications of these results for maximization of a random quasilinear utility function subject to a budget constraint and for representative agent general equilibrium models. The duality theory for cyclically monotone demand is developed using the …