For questions, please contact Vishal Ashvinkumar and Eric Spurlino - firstname.lastname@example.org, email@example.com
We endogenize the precision parameter of logit quantal response equilibrium (LQRE) (McKelvey and Palfrey, 1995 ). In the first stage of an endogenous quantal response equilibrium (EQRE), each player chooses precision optimally subject to costs, given correct beliefs over other players’ (second-stage) actions. In the second stage, players’ actions form a heterogeneous LQRE given the first-stage choices of precision. We establish existence and basic results for normal form games. In the case where each player has only two actions, we show that EQRE satisfies a modified version of the regularity axioms (Goeree et al., 2005)and provide analogues to classic results for LQRE including those for equilibrium selection. For generalized matching pennies, we show that the sets of EQRE and LQRE (i.e. indexed by their respective parameters) are curves in the unit square that cross at finite points that we give explicitly, and hence the models’ predictions are generically distinct. We apply EQRE to experimental data.