Path Perfectness in Games of Perfect Information

Torben Tranaes ()

No 92-12, Discussion Papers from University of Copenhagen. Department of Economics

Abstract: The strategic implications of ties in extensive form games of perfect information are discussed, and a refinement of subgame-perfect equilibrium suggested. The idea is that threats and promises have to be credible in order to be part of an equilibrium strategy, as usual, but further that, if credible threats or promises exist, they have to be used. We suggest a formalization of this idea and prove existence in any finite game. Furthermore, we illustrate by a simple market game that such an additional requirement to subgame perfectness can restrict essentially the set of equilibria when modeling competitive market interaction. The equilibrium refinement is based on a forward-induction argument.

Keywords: subgame-perfect equilibrium refinements; forward induction; modeling market interaction (search for similar items in EconPapers)
Pages: 23 pages
Date: 1992-12
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Persistent link: https://EconPapers.repec.org/RePEc:kud:kuiedp:9212

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