Stochastic Equilibria: Noise in Actions or Beliefs?

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...

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Bibliographic Details
Published in:American economic journal. Microeconomics 2022-02, Vol.14 (1), p.94-142
Main Author: Friedman, Evan
Format: Article
Language:English
Subjects:
Economics and Finance
Humanities and Social Sciences
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Summary: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. (JEL C72, D83, D91)
ISSN:1945-7669
1945-7685
1945-7685
DOI:10.1257/mic.20190013