Chapter

Applications to Economics

Jacob K. Goeree, Charles A. Holt and Thomas R. Palfrey

in Quantal Response Equilibrium

Published by Princeton University Press

Published in print June 2016 | ISBN: 9780691124230
Published online January 2018 | e-ISBN: 9781400880928
Applications to Economics

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This chapter explores whether the equilibrium effects of noisy behavior can cause large deviations from standard predictions in economically relevant situations. It considers a simple price-competition game, which is also partly motivated by the possibility of changing a payoff parameter that has no effect on the unique Nash equilibrium, but which may be expected to affect quantal response equilibrium. In the minimum-effort coordination game studied, any common effort in the range of feasible effort levels is a Nash equilibrium, but one would expect that an increase in the cost of individual effort or an increase in the number of players who are trying to coordinate would reduce the effort levels observed in an experiment. The chapter presents an analysis of the logit equilibrium and rent dissipation for a rent-seeking contest that is modeled as an “all-pay auction.” The final two applications in this chapter deal with auctions with private information.

Keywords: noisy behavior; quantal response equilibrium; QRE; price-competition game; minimum-effort coordination game; Nash equilibrium; logit equilibrium; rent dissipation; auctions

Chapter.  13788 words.  Illustrated.

Subjects: History of Economic Thought

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