Hysteresis Effects of Changing Parameters of Noncooperative Games

Abstract

We adapt the method used by Jaynes to derive the equilibria of statistical physics to instead derive equilibria of bounded rational game theory. We analyze the dependence of these equilibria on the parameters of the underlying game, focusing on hysteresis effects. In particular, we show that by gradually imposing individual-specific tax rates on the players of the game, and then gradually removing those taxes, the players move from a poor equilibrium to one that is better for all of them.

Keywords: Quantal Response Equilibria, Comparitive Statics, Bifurcation Surface, Maximum Entropy

JEL Classification: C70, C72, D60, D70