Exploration vs exploitation, impulse balance equilibrium, and a specification test for the El Farol bar problem

Kirman, Alan ; Laisney, François ; Pezanis-Christou, Paul

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URL: https://ub-madoc.bib.uni-mannheim.de/46991
URN: urn:nbn:de:bsz:180-madoc-469919
Document Type: Working paper
Year of publication: 2018
The title of a journal, publication series: ZEW Discussion Papers
Volume: 18-038
Place of publication: Mannheim
Publication language: English
Institution: Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
MADOC publication series: Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Classification: JEL: C7 , C92,
Keywords (English): Congestion games , exploration vs exploitation , quantal response equilibrium , impulse balance equilibrium , specification test , experimental economics
Abstract: The paper reports on market-entry experiments that manipulate both payoff structures and payoff levels to assess two stationary models of behaviour: Exploration vs Exploitation (EvE, which is equivalent to Quantal Response Equilibrium) and Impulse Balance Equilibrium (IBE). These models explain the data equally well in terms of goodness-of-fit whenever the observed probability of entry is less than the symmetric Nash equilibrium prediction; otherwise IBE marginally outperforms EvE. When assuming agents playing symmetric strategies, and estimating the models with session data, IBE yields more theory-consistent estimates than EvE, no matter the payoff structure or level. However, the opposite occurs when the symmetry assumption is relaxed. The conduct of a specification test rejects the validity of the restrictions on entry probabilities imposed by EvE for agents with symmetric strategies, in 50 to 75% of sessions and it always rejects it in the case of IBE, which indicates that the symmetric variant of these models has little empirical support.

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