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Stochastic Equilibria: Noise in Actions or Beliefs?

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  • Evan Friedman

Abstract

We introduce noisy belief equilibrium (NBE) for normal-form games in which players best respond to noisy belief realizations. Axioms restrict belief distributions to be unbiased with respect to and responsive to changes in the opponents' behavior. The axioms impose testable restrictions both within and across games, and we compare these restrictions to those of regular quantal response equilibrium (QRE) in which axioms are placed on the quantal response function as the primitive. NBE can generate similar predictions as QRE in several classes of games. Unlike QRE, NBE is a refinement of rationalizability and invariant to affine transformations of payoffs.

Suggested Citation

  • Evan Friedman, 2022. "Stochastic Equilibria: Noise in Actions or Beliefs?," American Economic Journal: Microeconomics, American Economic Association, vol. 14(1), pages 94-142, February.
    • Handle: RePEc:aea:aejmic:v:14:y:2022:i:1:p:94-142
    DOI: 10.1257/mic.20190013
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    Cited by:

    1. Evan Friedman & Duarte Gonc{c}alves, 2023. "Quantal Response Equilibrium with a Continuum of Types: Characterization and Nonparametric Identification," Papers 2307.08011, arXiv.org, revised Mar 2024.

    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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