Quantal Response Equilibrium - Logit Equilibrium

By far the most common specification for QRE is logit equilibrium (LQRE). In a logit equilibrium, player's strategies are chosen according to the probability distribution:

is the probability of player i choosing strategy j. is the expected utility to player i of choosing strategy j given other players are playing according to the probability distribution .

Of particular interest in the logit model is the non-negative parameter λ (sometimes written as 1/μ). λ can be thought of as the rationality parameter. As λ→0, players become "completely irrational", and play each strategy with equal probability. As λ→∞, players become "perfectly rational", and play approaches a Nash equilibrium.

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Famous quotes containing the word equilibrium:

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    Anton Pavlovich Chekhov (1860–1904)