Sampling logit equilibrium and endogenous payoff distortion

Abstract

We introduce sampling logit equilibrium (SLE) for population games in which agents infer payoffs from a finite sample of $k$ opponents' actions and respond according to a logit choice rule. We find that sampling error systematically distorts incentives. Actions whose inferred payoffs are relatively more variable earn a variance premium, while nonlinear payoffs generate a curvature premium through Jensen effects. For large samples, an SLE is approximated by a logit equilibrium of a virtual game whose payoffs include these premiums. For linear games, when sampling error and logit noise vanish at comparable rates, their interaction around completely mixed Nash equilibria is reduces to a Gaussian--Gumbel limiting model. We also establish exact finite-$k$ uniqueness and stability results. In particular, in two-action coordination games with a $1/k$-dominant action, the unique SLE converges to the risk-dominant equilibrium as logit noise vanishes.

arXiv comment61 pages, 11 figures