- Quantal response equilibrium
infobox equilibrium

name=Quantal response equilibrium

subsetof = Bayes Nash equilibrium

supersetof =Nash equilibrium ,Logit equilibrium

discoverer =Richard McKelvey andThomas Palfrey

usedfor =Non-cooperative game s

example =Traveler's dilemma **Quantal response equilibrium**(**QRE**) is asolution concept ingame theory . First introduced byRichard McKelvey andThomas Palfrey , it provides an equilibrium notion withbounded rationality . QRE is not an equilibrium refinement, and it can give significantly different results thanNash equilibrium . QRE is only defined for games with discrete strategies, although there are continuous-strategy analogues.In a quantal response equilibrium, players are assumed to make errors in choosing which pure strategy to play. The probability of any particular strategy being chosen is positively related to the payoff from that strategy. In other words, very costly errors are unlikely.

The equilibrium arises from the realization of beliefs. A player's payoffs are computed based on beliefs about other players' probability distribution over strategies. In equilibrium, a player's beliefs are correct.

**Application to data**When analyzing data from the play of actual games (particularly from laboratory experiments), Nash equilibrium can be unforgiving. Any non-equilibrium move can appear equally "wrong", but realistically should not be used to reject a theory. QRE allows every strategy to be played with non-zero probability, and so any data is possible (though not necessarily reasonable).

**Logit equilibrium**By far the most common specification for QRE is

**logit equilibrium**(**LQRE**). In a logit equilibrium, player's strategies are chosen according to the probability distribution:$P\_\{ij\}\; =\; frac\{exp(lambda\; EU\_\{ij\}(P\_\{-i\}))\}\{sum\_k\{exp(lambda\; EU\_\{ik\}(P\_\{-i\}))$

$P\_\{ij\}$ is the probability of player i choosing strategy j.$EU\_\{ij\}(P\_\{-i\}))$ is the expected utility to player i of choosing strategy j given other players are playing according to the probability distribution $P\_\{-i\}$.

Of particular interest in the logit model is the non-negative parameter λ (sometimes written as 1/μ). λ can be thought of as the rationality parameter. As λ→0, players become "completely irrational", and play each strategy with equal probability. As λ→∞, players become "perfectly rational", and play approaches a Nash equilibrium.

**For dynamic games**For dynamic (extensive form) games, McKelvey and Palfrey defined

**agent quantal response equilibrium**(**AQRE**). AQRE is somewhat analogous tosubgame perfection . In an AQRE, each player plays with some error as in QRE. At a given decision node, the player determines the expected payoff of each action by treating their future self as an independent player with a known probability distribution over actions.As in QRE, in a AQRE every strategy is used with nonzero probability. This provides an additional advantage of AQRE over perfectly rational solution concepts. Since every path is followed with some probability, there is no concern about defining beliefs "off the equilibrium path".

**Critiques****Free parameter**LQRE has the free parameter λ. As λ→∞, LQRE→Nash equilibrium, so LQRE will always be at least as good a fit as Nash equilibrium. Changes in the parameter can result in large changes to equilibrium behavior.

However, the theory is incomplete without describing where λ comes from. Estimates of λ from experiments can vary significantly. Sometimes this variance seems to be a result of individual characteristics (for instance, λ sometimes increases with learning). Other times it appears that λ varies from game to game.

**References*** Citation

last1 = McKelvey | first1 = Thomas

author1-link = Richard McKelvey

last2 = Palfrey

author2-link = Thomas Palfrey

title = Quantal Response Equilibria for Normal Form Games

journal = Games and Economic Behavior

volume = 10

pages = 6–38

year = 1995

doi = 10.1006/game.1995.1023

* Citation

last1 = McKelvey | first1 = Thomas

author1-link = Richard McKelvey

last2 = Palfrey

author2-link = Thomas Palfrey

title = Quantal Response Equilibria for Extensive Form Games

journal = Experimental Economics

volume = 1

pages = 9–41

year = 1998

doi = 10.1007/BF01426213

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