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Subgame-perfect equilibria in stochastic timing games

Frank Riedel () and Jan-Henrik Steg ()

Journal of Mathematical Economics, 2017, vol. 72, issue C, 36-50

Abstract: We develop a notion of subgames and the related notion of subgame-perfect equilibrium – possibly in mixed strategies – for stochastic timing games. To capture all situations that can arise in continuous-time models, it is necessary to consider stopping times as the starting dates of subgames. We generalize Fudenberg and Tirole’s (Rev. Econom. Stud. 52, 383–401, 1985) mixed-strategy extensions to make them applicable to stochastic timing games and thereby provide a sound basis for subgame-perfect equilibria of preemption games. Sufficient conditions for equilibrium existence are presented, and examples illustrate their application as well as the fact that intuitive arguments can break down in the presence of stochastic processes with jumps.

Keywords: Timing games; Stochastic games; Mixed strategies; Subgame-perfect equilibrium; Continuous time; Optimal stopping (search for similar items in EconPapers)
Date: 2017
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Working Paper: Subgame-Perfect Equilibria in Stochastic Timing Games (2014) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:mateco:v:72:y:2017:i:c:p:36-50

DOI: 10.1016/j.jmateco.2017.06.006

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