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Heterogeneous Quantal Response Equilibrium and Cognitive Hierarchies

Camerer, Colin F. and Palfrey, Thomas R. and Rogers, Brian W. (2006) Heterogeneous Quantal Response Equilibrium and Cognitive Hierarchies. Social Science Working Paper, 1260. California Institute of Technology , Pasadena, CA. (Unpublished)

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We explore an equilibrium model of games where players’ choice behavior is given by logit response functions, but their payoff responsiveness is heterogeneous. We extend the definition of quantal response equilibrium to this setting, calling it heterogeneous quantal response equilibrium (HQRE), and prove existence under weak conditions. We generalize HQRE to allow for limited insight, in which players can only imagine others with low responsiveness. We identify a formal connection between this new equilibrium concept, called truncated quantal response equilibrium (TQRE), and the Cognitive Hierarchy (CH) model. We show that CH can be approximated arbitrarily closely by TQRE. We report a series of experiments comparing the performance of QRE, HQRE, TQRE and CH. A surprise is that the fi of the models are quite close across a variety of matrix and dominance-solvable asymmetric information betting games. The key link is that in the QRE approaches, strategies with higher expected payoffs are chosen more often than strategies with lower expected payoff. In CH this property is not built into the model, but generally holds true in the experimental data.

Item Type:Report or Paper (Working Paper)
Camerer, Colin F.0000-0003-4049-1871
Palfrey, Thomas R.0000-0003-0769-8109
Additional Information:We are grateful to the National Science Foundation grants SES-0079301 and SES-0450712 for supporting this research.
Group:Social Science Working Papers
Funding AgencyGrant Number
Subject Keywords:experimental economics, quantal response equilibrium, cognitive hierarchy, behavioral game theory
Series Name:Social Science Working Paper
Issue or Number:1260
Classification Code:JEL: 024, 026
Record Number:CaltechAUTHORS:20170801-093456313
Persistent URL:
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:79668
Deposited By: Hanna Storlie
Deposited On:01 Aug 2017 20:25
Last Modified:22 Nov 2019 09:58

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