Toward a Theory of Path Perfectness: Anticipated Behavior in Games of Perfect Information

Torben Tranaes ()

No 90-22, Discussion Papers from University of Copenhagen. Department of Economics

Abstract: It is argued that even in games of perfect information there can be unattractive subgame perfect equilibria. This is so when anticipation of threats is taken as the starting point, rather than the threats themselves. Furthermore, there exist equilibria which are not quite subgame perfect although they support fairly sensible paths of realization. When standard equilibrium concepts are extended with the suggested requirement of path perfectness, solutions where threats and promises can be used more actively appear. For example, it leads to a slightly tighter equilibrium concept than subgame perfectness: On one hand, threats should be credible for being part of an equilibrium strategy, but on the other hand if credible threats exist they should be used. The suggested notion is a formalization of a modest forward induction argument.

Pages: 26 pages
Date: 1990-12
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Persistent link: https://EconPapers.repec.org/RePEc:kud:kuiedp:9022

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