Equilibrium notions and framing effects

TL;DR

This paper demonstrates that equilibrium concepts like the quantal response equilibrium are susceptible to framing effects, which challenge their reliability in predicting human behavior across differently presented but equivalent economic problems.

Contribution

It reveals that equilibrium notions vary with problem framing, questioning their suitability for theoretical modeling of human decision-making.

Findings

Equilibrium predictions change with problem framing.

Nash equilibrium often inaccurate for experimental data.

Quantal response equilibrium also affected by framing.

Abstract

Experimental economics has repeatedly demonstrated that the Nash equilibrium makes inaccurate predictions for a vast set of games. Instead, several alternative theoretical concepts predict behavior that is much more in tune with observed data, with the quantal response equilibrium as the most prominent example. However, here we show that this equilibrium notion itself, like any other concept that varies smoothly with the payoffs, is necessarily subject to framing effects: If the same economic problem is represented in a different but equivalent way, the predicted results will differ. As a consequence, we argue that tools and methods that are successful in explaining human behavior in laboratory experiments may be unsuitable for doing theory.