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Exploration vs Exploitation, Impulse Balance Equilibrium, and the El Farol bar problem| old_uid | 14990 |
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| title | Exploration vs Exploitation, Impulse Balance Equilibrium, and the El Farol bar problem |
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| start_date | 2017/12/08 |
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| schedule | 14h30 |
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| online | no |
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| details | Work in collaboration with Alan Kirman and François Laisney |
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| summary | Many social and economic activities require some degree of coordination in people's actions to be enjoyed. Congestion games, in which a group of individuals contemplates participating in an event that is enjoyed only if a few participate, characterize well such situations. Such games have been widely investigated in the social sciences, and laboratory experiments suggest that despite the existence of multiple equilibria in pure strategies, participants somehow manage to behave almost optimally: overall, their behaviour is found to converge to the game's (unique) symmetric Nash mixed-strategy equilibrium. This pattern was first coined as ‘magic’, and has subsequently been explained in terms of reinforcement learning processes, probability distortions or overconfidence. Yet, some investigations report persistent deviations which can be rationalised in terms of Quantal Response Equilibrium: a stochastic version of the Nash equilibrium which is remarkably successful in organizing the behaviour observed in numerous economic experiments.
The paper provides two new rationales of behaviour in a class of congestion games that is widely used in economics to study market-entry decisions and often referred to as the El Farol bar problem (Arthur, AmEconRev, 1994). The first model, EvE, uses an ‘Exploration vs Exploitation’ argument and happens to be structurally equivalent to that of the Quantal Response Equilibrium (McKelvey and Palfrey, GamesEconBehav, 1996). The second model, IBE, uses an Impulse Balance Equilibrium argument inspired from Selten et al. (ExpEcon, 2005) that makes a heuristic prediction as to how agents play games and assumes no best-responding behaviour: agents only balance the foregone payoffs associated to the options available.
Both EvE and IBE are parsimonious stationary models that involve only one parameter. To assess their explanatory power, we conduct market-entry experiments that manipulate both payoff structures and payoff levels, and that involve groups of ten participants playing for 150 rounds. The data indicate that these two models explain equally well the data in terms of goodness-of-fit whenever the observed probability of entry is less than the Nash equilibrium prediction; otherwise IBE marginally outperforms EvE. The estimates are also constant throughout the experiments which suggests no obvious learning pattern in participants’ behaviour. When assuming symmetric agents (as is usually done in the experimental economics literature) and when estimating the models with group rather than pooled data, IBE yields more consistent estimates than EvE. However, the opposite occurs when the symmetry assumption is relaxed, and the conduct of a specification test overwhelmingly rejects the null of consistency of the data with either model. The pros and cons of modelling heterogeneity in such games is briefly reviewed.
Overall, our study indicates that the conclusions drawn from the usual approach of assuming symmetric agents when estimating such models crucially depends on whether ones uses pooled or group data and that in the latter case, these models have in fact little empirical support. |
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| responsibles | Berestycki, Nadal |
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