Chen, Daniel L. and Schonger, Martin (2023) Invariance of equilibrium to the strategy method I: theory. Journal of the Economic Science Association.

Text Restricted Registered users only until 6 October 2024. Download (1MB)

Abstract

This article highlights a potential and significant economic–theoretical bias in the widely used strategy method (SM) technique. Although SM is commonly employed to analyze numerous observations per subject regarding rare or off-equilibrium behaviors unattainable through direct elicitation (DE), researchers often overlook a critical distinction. The strategic equivalence between SM and DE is applicable in the context of monetary payoff games, but not in the actual utility-based games played by participants. This oversight may lead to inaccurate conclusions and demand a reevaluation of existing research in the field. We formalize the mapping from the monetary payoff game to this actual game and delineate necessary and sufficient conditions for strategic equivalence to apply.