Stochastic Equilibria: Noise in Actions or Beliefs?
- American Economic Journal: Microeconomics (Forthcoming)
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 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.
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