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Vertigo: Comparing Structural Models of Imperfect Behavior in Experimental Games

El-Gamal, Mahmoud and Palfrey, Thomas R. (1992) Vertigo: Comparing Structural Models of Imperfect Behavior in Experimental Games. Social Science Working Paper, 800. California Institute of Technology , Pasadena, CA. (Unpublished) https://resolver.caltech.edu/CaltechAUTHORS:20171108-144316123

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Abstract

This paper investigates learning in games with one-sided incomplete information using laboratory data from a game which we call the game of Vertigo. The predicted Bayes-Nash equilibrium behavior of the agents in this type of game generates overly strong restrictions on the data, including the zero likelihood problem: certain actions should never be observed. To circumvent statistical problems, and to allow for deviations from perfectly rational behavior, we introduce the possibility of players making errors when choosing their actions. We compare two competing models depending on whether players take the errors in actions into consideration when formulating their strategies. We also investigate possible deviations from Bayes's rule, producing too fast or too slow an updating rule. In total, we get six models of sophisticated and unsophisticated strategy formation on the first dimension, and fast, slow, or no updating on the second. We apply a fully Bayesian structural econometric approach to compare the statistical performance of these six models, and to obtain posterior estimates of several nuisance parameters governing the errors in actions. The two models where players are unsophisticated and either use no updating at all, or use dampened updating, have a much higher likelihood than any of the others.


Item Type:Report or Paper (Working Paper)
Related URLs:
URLURL TypeDescription
http://resolver.caltech.edu/CaltechAUTHORS:20160303-154112586Related ItemPublished Version
ORCID:
AuthorORCID
Palfrey, Thomas R.0000-0003-0769-8109
Additional Information:We acknowledge the financial support from NSF grant #SES9011828 to the California Institute of Technology and from the JPL-Caltech Supercomputing project. We have benefited from many discussions with Richard McKelvey. Marty Hahm wrote the computer programs for the experiment. Published as El-Gamal, Mahmoud and Palfrey, Thomas R. (1995) Vertigo: Comparing Structural Models of Imperfect Behavior in Experimental Games. Games and Economic Behavior, 8 (2). pp. 322-348.
Group:Social Science Working Papers
Funders:
Funding AgencyGrant Number
NSFSES-9011828
JPL-Caltech Supercomputing projectUNSPECIFIED
Series Name:Social Science Working Paper
Issue or Number:800
Record Number:CaltechAUTHORS:20171108-144316123
Persistent URL:https://resolver.caltech.edu/CaltechAUTHORS:20171108-144316123
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:83080
Collection:CaltechAUTHORS
Deposited By: Jacquelyn Bussone
Deposited On:08 Nov 2017 23:23
Last Modified:22 Nov 2019 09:58

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