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  4. February 2022
  5. Stochastic Equilibria: Noise in Actions or Beliefs?

American Economic Journal:
Microeconomics

ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)

Stochastic Equilibria: Noise in Actions or Beliefs?

  • Evan Friedman
American Economic Journal: Microeconomics
vol. 14, no. 1, February 2022
(pp. 94–142)
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Abstract

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.

Citation

Friedman, Evan. 2022. "Stochastic Equilibria: Noise in Actions or Beliefs?" American Economic Journal: Microeconomics, 14 (1): 94–142. DOI: 10.1257/mic.20190013

Additional Materials

JEL Classification

  • C72 Noncooperative Games
  • D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
  • D91 Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
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