On the beliefs off the path: Equilibrium refinement due to quantal response and level-k
The extensive form game we study has multiple perfect equilibria, but it has a unique limiting logit equilibrium (QRE) and a unique level-k prediction as k approaches infinity. The convergence paths of QRE and level-k are different, but they converge to the same limit point. We analyze whether subje...
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Published in | Games and economic behavior Vol. 86; pp. 102 - 125 |
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Main Authors | , , |
Format | Journal Article |
Language | English |
Published |
Duluth
Elsevier Inc
01.07.2014
Academic Press |
Subjects | |
Online Access | Get full text |
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Summary: | The extensive form game we study has multiple perfect equilibria, but it has a unique limiting logit equilibrium (QRE) and a unique level-k prediction as k approaches infinity. The convergence paths of QRE and level-k are different, but they converge to the same limit point. We analyze whether subjects adapt beliefs when gaining experience, and if so whether they take the QRE or the level-k learning path. We estimate transitions between level-k and QRE belief rules using Markov-switching rule learning models. The analysis reveals that subjects take the level-k learning path and that they advance gradually, switching from level 1 to 2, from level 2 to equilibrium, and reverting to level 1 after observing opponents deviating from equilibrium. The steady state therefore contains a mixture of behavioral rules: levels 0, 1, 2, and equilibrium with weights of 2.9%, 16.6%, 37.9%, and 42.6%, respectively. |
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Bibliography: | ObjectType-Article-2 SourceType-Scholarly Journals-1 ObjectType-Feature-1 content type line 23 |
ISSN: | 0899-8256 1090-2473 |
DOI: | 10.1016/j.geb.2014.03.002 |