Backward Induction and Model Deterioration

Francesco Squintani
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Francesco Squintani: University College London

The B.E. Journal of Theoretical Economics, 2004, vol. advances.4, issue 1

Abstract: The issue of how players' model of a game may evolves over time is largely unexplored. We formalize this issue for games with perfect information, and show that small-probability model deterioration may upset the complete-model backward induction solution, possibly yielding a Pareto-improving long run distribution of play. We derive necessary and sufficient conditions for the robustness of backward induction. These conditions can be interpreted with a forward-induction logic, and are shown to be closely related to the requirements for asymptotic stability of the backward induction path under standard evolutionary dynamics.

Keywords: Evolutionary Game Theory; Backward Induction; Subgame Perfect Equilibrium (search for similar items in EconPapers)
JEL-codes: C71 C73 D83 (search for similar items in EconPapers)
Date: 2004

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Persistent link: http://EconPapers.repec.org/RePEc:bpj:bejtec:v:advances.4:y:2004:i:1:n:2

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