Testing the Quantal Response Hypothesis

22 Pages Posted: 20 Feb 2019

See all articles by Emerson Melo

Emerson Melo

Indiana University Bloomington

Kirill Pogorelskiy

University of Warwick - Department of Economics

Matthew Shum

California Institute of Technology

Multiple version iconThere are 2 versions of this paper

Date Written: February 2019

Abstract

We develop a nonparametric test for consistency of player behavior with the quantal response equilibrium (QRE). The test exploits a characterization of the equilibrium choice probabilities in any structural QRE as the gradient of a convex function; thereby, QRE‐consistent choices satisfy the cyclic monotonicity inequalities. Our testing procedure utilizes recent econometric results for moment inequality models. We assess our test using lab experimental data from a series of generalized matching pennies games. We reject the QRE hypothesis in the pooled data but cannot reject individual‐level quantal response behavior for over half of the subjects.

Suggested Citation

Melo, Emerson and Pogorelskiy, Kirill and Shum, Matthew, Testing the Quantal Response Hypothesis (February 2019). International Economic Review, Vol. 60, Issue 1, pp. 53-74, 2019, Available at SSRN: https://ssrn.com/abstract=3335297 or http://dx.doi.org/10.1111/iere.12344

Emerson Melo (Contact Author)

Indiana University Bloomington ( email )

Dept of Economics
100 South Indiana Ave.
Bloomington, IN 47405
United States

Kirill Pogorelskiy

University of Warwick - Department of Economics ( email )

Coventry CV4 7AL
United Kingdom

HOME PAGE: http://warwick.ac.uk/kbp

Matthew Shum

California Institute of Technology ( email )

Pasadena, CA 91125
United States

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