Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 542: Probabilistic choice in games: properties of Rosenthal's t-solutions

Mark Voorneveld ()
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Mark Voorneveld: Dept. of Economics, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, SE-113 83 Stockholm, Sweden

Abstract: In t-solutions, quantal response equilibria based on the linear probability model as introduced in R.W. Rosenthal (1989, Int. J. Game Theory 18, 273-292), choice probabilities are related to the determination of leveling taxes. The set of t-solutions coincides with the set of Nash equilibria of a game with quadratic control costs. Increasing the rationality of the players allows them to successively eliminate higher levels of strictly dominated actions. Moreover, there exists a path of t-solutions linking uniform randomization to Nash equilibrium.

Keywords: quantal response equilibrium; t-solutions; linear probability model

JEL-codes: C72

15 pages, First version: October 28, 2003. Revised: December 20, 2003. Earlier revisions: October 31, 2003.

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