Applications to Economics

This chapter explores whether the equilibrium effects of noisy behavior can cause large deviations from standard predictions in economically relevant situations. It considers a simple price-competition game, which is also partly motivated by the possibility of changing a payoff parameter that has no effect on the unique Nash equilibrium, but which may be expected to affect quantal response equilibrium. In the minimum-effort coordination game studied, any common effort in the range of feasible effort levels is a Nash equilibrium, but one would expect that an increase in the cost of individual effort or an increase in the number of players who are trying to coordinate would reduce the effort levels observed in an experiment. The chapter presents an analysis of the logit equilibrium and rent dissipation for a rent-seeking contest that is modeled as an “all-pay auction.” The final two applications in this chapter deal with auctions with private information.

Introduction and Background

This introductory chapter provides an overview of the book's main themes. This book focuses on a class of general models, quantal response equilibrium (QRE) models, and its applications to economics, political science, and pure game theory. It aims to lay out for an informed reader the broad array of theoretical and experimental results based on QRE. It contains some genuinely new material, offering new directions and open issues that have not been explored in depth yet, as well as delving into a range of peripheral issues, tangencies, and more detailed data analysis than the typical journal-article format allows for. There is also a “how-to” aspect to the book, as it provides details and sample programs to show readers how to compute QRE and how to take it to the data.

Over a Decade of Neuroeconomics: What Have We Learned?

At its inception, neuroeconomics promised to revolutionize economics. That promise has not yet been realized, and neuroeconomics has seen limited penetration into mainstream economics. Nevertheless, it would be a mistake to declare that neuroeconomics has failed. Quite to the contrary, the yearly rate of neuroeconomics papers has roughly doubled since 2005. While the number of direct applications to economics remains limited, due to the infancy of the field, we have learned an amazing amount about how the brain makes decisions. In this article, we review some of the major topics that have emerged in neuroeconomics and highlight findings that we believe will form the basis for future applications to economics. When possible, we focus on existing applications to economics and future directions for that research.