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Quantal response equilibria with heterogeneous agents

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  • Russell, Golman
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    Abstract

    This paper introduces a model of quantal response equilibrium with heterogeneous agents and demonstrates the existence of a representative agent for such populations. Except in rare cases, the representative agentʼs noise terms cannot be independently and identically distributed across the set of actions, even if that is assumed for the individual agents. This result demonstrates a fundamental difference between a representative agent and truly heterogeneous quantal responders and suggests that when fitting quantal response specifications to aggregate data from a population of subjects, the noise terms should be allowed to be jointly dependent across actions. Even though this introduces additional degrees of freedom, it makes the model well specified. The representative agent inherits a regular quantal response function from the actual agents, so this model does impose falsifiable restrictions.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0022053111000913
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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Economic Theory.

    Volume (Year): 146 (2011)
    Issue (Month): 5 (September)
    Pages: 2013-2028

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    Handle: RePEc:eee:jetheo:v:146:y:2011:i:5:p:2013-2028

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    Web page: http://www.elsevier.com/locate/inca/622869

    Related research

    Keywords: Quantal response equilibria Bounded rationality Representative agent Heterogeneity;

    References

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    1. Philip A. Haile & Ali Hortacsu & Grigory Kosenok, 2003. "On the Empirical Content of Quantal Response Equilibrium," Levine's Bibliography 666156000000000215, UCLA Department of Economics.
    2. Alan Kirman, 2006. "Heterogeneity in Economics," Journal of Economic Interaction and Coordination, Springer, vol. 1(1), pages 89-117, May.
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    10. Josef Hofbauer & William H. Sandholm, 2002. "On the Global Convergence of Stochastic Fictitious Play," Econometrica, Econometric Society, vol. 70(6), pages 2265-2294, November.
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    12. Hopkins, Ed, 1999. "A Note on Best Response Dynamics," Games and Economic Behavior, Elsevier, vol. 29(1-2), pages 138-150, October.
    13. Hommes, Cars H., 2006. "Heterogeneous Agent Models in Economics and Finance," Handbook of Computational Economics, in: Leigh Tesfatsion & Kenneth L. Judd (ed.), Handbook of Computational Economics, edition 1, volume 2, chapter 23, pages 1109-1186 Elsevier.
    14. Josef Hofbauer & Ed Hopkins, 2004. "Learning in Perturbed Asymmetric Games," ESE Discussion Papers 53, Edinburgh School of Economics, University of Edinburgh.
    15. R. McKelvey & T. Palfrey, 2010. "Quantal Response Equilibria for Normal Form Games," Levine's Working Paper Archive 510, David K. Levine.
    16. Nathaniel T Wilcox, 2006. "Theories of Learning in Games and Heterogeneity Bias," Econometrica, Econometric Society, vol. 74(5), pages 1271-1292, 09.
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    Cited by:
    1. Lim, Wooyoung & Matros, Alexander & Turocy, Theodore L., 2014. "Bounded rationality and group size in Tullock contests: Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 99(C), pages 155-167.
    2. Golman, Russell, 2012. "Homogeneity bias in models of discrete choice with bounded rationality," Journal of Economic Behavior & Organization, Elsevier, vol. 82(1), pages 1-11.

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