Handbook of Research Methods and Applications in Experimental Economics
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Handbook of Research Methods and Applications in Experimental Economics

Edited by Arthur Schram and Aljaž Ule

This volume offers a comprehensive review of experimental methods in economics. Its 21 chapters cover theoretical and practical issues such as incentives, theory and policy development, data analysis, recruitment, software and laboratory organization. The Handbook includes separate parts on procedures, field experiments and neuroeconomics, and provides the first methodological overview of replication studies and a novel set-valued equilibrium concept. As a whole, the combination of basic methods and current developments will aid both beginners and advanced experimental economists.
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Chapter 13: Rank-dependent choice equilibrium: a non-parametric generalization of QRE

Jacob K. Goeree, Charles A. Holt, Philippos Louis, Thomas R. Palfrey and Brian Rogers

Abstract

Quantal response equilibrium (QRE) builds the possibility of errors into an equilibrium analysis of games. One objection to QRE is that specific functional forms must be chosen to derive equilibrium predictions. As these can be chosen from an infinitely dimensional set, another concern is whether QRE is falsifiable. Finally, QRE can typically only be solved numerically. We address these concerns through the lens of a novel set-valued solution concept, rank-dependent choice equilibrium (RDCE), which imposes a simple ordinal monotonicity condition: equilibrium choice probabilities are ranked the same as their associated expected payoffs. We first discuss important differences between RDCE and QRE and then show that RDCE envelopes all QRE models. Finally, we show that RDCE (and, hence, QRE) is falsifiable since the measure of the RDCE set, relative to the set of all mixed-strategy profiles, converges to zero at factorial speed in the number of available actions.

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