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On the Empirical Content of Quantal Response Equilibrium

The quantal response equilibrium (QRE) notion of McKelvey and Palfrey (1995) has recently attracted considerable attention, due in part to its widely documented ability to rationalize observed behavior in games played by experimental subjects. However, even with strong a priori restrictions on unobservables, QRE imposes no falsifiable restrictions: it can rationalize any distribution of behavior in any normal form game. After demonstrating this, we discuss several approaches to testing QRE under additional maintained assumptions.

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Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1432R.

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Length: 26 pages
Date of creation: Mar 0820
Date of revision: Jun 0820
Publication status: Published in American Economic Review (2008), 98(1): 180-200
Handle: RePEc:cwl:cwldpp:1432r
Note: CFP 1227.
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