Backward Induction and Model Deterioration

Francesco Squintani ()

The B.E. Journal of Theoretical Economics, 2004, vol. 4, issue 1, 36

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)
Date: 2004
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Working Paper: Backward Induction and Model Deterioration (2001)
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DOI: 10.2202/1534-5963.1157

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