Empirical Equilibrium

TL;DR

This paper investigates empirical equilibrium, a refinement of Nash equilibrium based on observed behavior distributions, clarifying its relationship with QRE theory and disturbed payoff models.

Contribution

It establishes the foundations of empirical equilibrium, differentiates it from other refinements, and explores its empirical content and theoretical implications.

Findings

Empirical equilibrium includes Nash equilibria consistent with observed behavior.

It refutes some models based on monotone additive disturbed payoffs.

Empirical equilibrium does not always align with certain equilibrium refinements.

Abstract

We study the foundations of empirical equilibrium, a refinement of Nash equilibrium that is based on a non-parametric characterization of empirical distributions of behavior in games (Velez and Brown,2020b arXiv:1907.12408). The refinement can be alternatively defined as those Nash equilibria that do not refute the regular QRE theory of Goeree, Holt, and Palfrey (2005). By contrast, some empirical equilibria may refute monotone additive randomly disturbed payoff models. As a by product, we show that empirical equilibrium does not coincide with refinements based on approximation by monotone additive randomly disturbed payoff models, and further our understanding of the empirical content of these models.