nep-exp New Economics Papers
on Experimental Economics
Issue of 2005‒04‒09
three papers chosen by
Daniel Houser
George Mason University

  1. Regular Quantal Response Equilibrium By Goeree, Jacob; Holt, Charles; Palfrey, Thomas
  2. Adaptive build-up and breakdown of trust : an agent based computational approach By Gorobets,Alexander; Nooteboom,Bart
  3. Learning to trust By Nooteboom,Bart

  1. By: Goeree, Jacob; Holt, Charles; Palfrey, Thomas
    Abstract: The structural Quantal Response Equilibrium (QRE) generalizes the Nash equilibrium by augmenting payoffs with random elements that are not removed in some limit. This approach has been widely used both as a theoretical framework to study comparative statics of games and as an econometric framework to analyze experimental and field data. The framework of structural QRE is flexible: it can be applied to arbitrary finite games and incorporate very general error structures. Restrictions on the error structure are needed, however, to place testable restrictions on the data (Haile et al., 2004). This paper proposes a reduced-form approach, based on quantal response functions that replace the best-response functions underlying the Nash equilibrium. We define a {\em regular} QRE as a fixed point of quantal response functions that satisfies four axioms: continuity, interiority, responsiveness, and monotonicity. We show that these conditions are not vacuous and demonstrate with an example that they imply economically sensible restrictions on data consistent with laboratory observations. The reduced-form approach allows for a richer set of regular quantal response functions, which has proven useful for estimation purposes.
    Keywords: Quantal response equilibrium, discrete choice models, reduced-form approach
    Date: 2005–03
  2. By: Gorobets,Alexander; Nooteboom,Bart (Tilburg University, Center for Economic Research)
    Abstract: This article employs Agent-Based Computational Economics (ACE) to investigate whether, and under what conditions, trust is viable in markets. The emergence and breakdown of trust is modeled in a context of multiple buyers and suppliers. Agents develop trust in a partner as a function of observed loyalty. They select partners on the basis of their trust in the partner and potential profit. On the basis of realized profits, they adapt the weight they attach to trust relative to profitability, and their own trustworthiness, modeled as a threshold of defection. Trust turns out to be viable under fairly general conditions.
    JEL: C63 D23 L14 L22 L24
    Date: 2005
  3. By: Nooteboom,Bart (Tilburg University, Center for Economic Research)
    Abstract: Trust is full of puzzle and paradox. Trust is both rational and emotional. Trust can go beyond calculative self-interest, but has its limits. People may want to trust, while they may also feel threatened by it. If trust is not in place prior to a relationship, on the basis of institutions, prior experience, or reputation, it has to be built up, in specific relations. For that one needs to learn, in the sense of building empathy, and perhaps a certain degree of identification. In an attempt at a better understanding of the puzzles and processes of trust, this chapter applies the perspective of 'embodied cognition', and insights from mental 'framing' and decision heuristics from social psychology.
    JEL: B52 D23 D83
    Date: 2005

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