Equilibrium notions and framing effects
AbstractExperimental economics has repeatedly demonstrated that the Nash equilibrium makes inaccurate predictions for a vast set of games. Instead, several alternative theoretical concepts predict behavior that is much more in tune with observed data, with the quantal response equilibrium as the most prominent example. However, here we show that this equilibrium notion itself, like any other concept that varies smoothly with the payoffs, is necessarily subject to framing effects: If the same economic problem is represented in a different but equivalent way, the predicted results will differ. As a consequence, we argue that tools and methods that are successful in explaining human behavior in laboratory experiments may be unsuitable for doing theory.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1012.1188.
Date of creation: Dec 2010
Date of revision: Oct 2011
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Web page: http://arxiv.org/
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-12-18 (All new papers)
- NEP-CBE-2010-12-18 (Cognitive & Behavioural Economics)
- NEP-EVO-2010-12-18 (Evolutionary Economics)
- NEP-EXP-2010-12-18 (Experimental Economics)
- NEP-GTH-2010-12-18 (Game Theory)
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