Justification of Stable Equilibria

Srihari Govindan and Robert Wilson (rwilson@stanford.edu)

Research Papers from Stanford University, Graduate School of Business

Abstract: Two assumptions are used to justify selection of equilibria in stable sets. One assumption requires that a selected set is invariant to addition of redundant strategies. The other is a strong version of backward induction. Backward induction is interpreted as the requirement that behavior strategies in an extensive-form game are sequentially rational and conditionally admissible at every information set; viz., quasi-perfect as defined by van Damme. The strong version requires 'truly' quasi-perfect, in that every action perturbation selects a quasi-perfect equilibrium in the set. For two-player games we also provide an exact characterization of stable sets.

Date: 2005-06
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