To QRE or Not To QRE? An Evaluation of Alternative Models in Behavioural Game Theory

Abstract

I conduct a targeted conceptual synthesis and evaluation of competing stochastic models of behaviour for normal form games. I present a review of Quantal Response Equilibrium (QRE) followed by a detailed discussion of two new stochastic models of behaviour, Noisy Belief Equilibrium (NBE) which introduces noise to beliefs instead of actions, and M equilibrium which introduces noise to both beliefs and actions. I contribute to existing literature by expanding on the relationship between NBE, Nash equilibrium, and QRE while also providing further analysis of the relationship between M equilibrium and Nash equilibrium. Additionally, I contribute to existing knowledge by proving key relationships between QRE, NBE, and M equilibrium in specific instances of generic 2 X 2 games. I briefly compare the parametric forms of each equilibrium model in two theoretical games before discussing areas of future research.