Behavioral Models of Competition: A Theoretical, Experimental, and Empirical Analysis

Modeling competition is a focal point in economics. The Nash Equilibrium is commonly applied as the solution concept to such competitive environments. In doing so, the analyst assumes perfectly rational actors. While this is a suitable starting point, the natural extension is to wonder about the applicability of policies designed around a modeled population of perfectly rational agents. This work takes a different approach to capture goal-oriented but noisy decision makers. McKelvey and Palfrey's Quantal Response Equilibrium is applied to different competitive situations. This approach has the ability to address how different equilibria stem from different levels of modeled agent rationality. The overall goal is to provide situation-specific models that accurately capture human behavior in competitive environments.