CFDP 1432

On the Empirical Content of Quantal Response Equilibrium

Author(s): 

Publication Date: September 2003

Pages: 22

Abstract: 

The quantal response equilibrium (QRE) notion of McKelvey and Palfrey (1995) has recently attracted considerable attention, due largely to its widely documented ability to rationalize observed behavior in games played by experimental subjects. We show that this ability to fit the data, as typically measured in this literature, is uninformative. Without a priori distributional assumptions, a QRE can match any distribution of behavior by each player in any normal form game. We discuss approaches that might be taken to provide valid empirical evaluation of the QRE and discuss its potential value as an approximating empirical structure.

Keywords: 

Quantal response equilibrium, Testable restrictions, Comparative statics

JEL Classification Codes: C7, C9, C52

JEL Classification Codes: C52