Tag Archive for 'Holt'

Article Summary: Noisy Directional Learning and the Logit Equilibrium

The paper is here (ungated).  The ideas.repec entry is here.  I believe that this (1999) was an early version of the same.  The authors are Simon P. Anderson [Ideas, Virginia] , Jacob K. Goeree [Ideas, CalTech] and Charles A. Holt [Ideas, Virginia].  The full reference is:

Anderson, Simon P.; Goeree, Jacob K. and Holt, Charles A., “Noisy Directional Learning and the Logit Equilibrium.” Scandinavian Journal of Economics, Special Issue in Honor of Reinhard Selten, 2004, 106(3), pp. 581-602, September 2004

The abstract:

We specify a dynamic model in which agents adjust their decisions toward higher payoffs, subject to normal error. This process generates a probability distribution of players’ decisions that evolves over time according to the Fokker–Planck equation. The dynamic process is stable for all potential games, a class of payoff structures that includes several widely studied games. In equilibrium, the distributions that determine expected payoffs correspond to the distributions that arise from the logit function applied to those expected payoffs. This ‘‘logit equilibrium’’ forms a stochastic generalization of the Nash equilibrium and provides a possible explanation of anomalous laboratory data.

This is a model of bounded rationality inspired, in part, by experimental results.  It provides a stochastic equilibrium (i.e. a distribution over choices) that need not coincide with, nor even be centred around, the Nash equilibrium.  The summary is below the fold.

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