Backward Induction and Model Deterioration

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Backward Induction and Model Deterioration

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Francesco Squintani (University College London)

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Francesco Squintani

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.

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Article provided by Berkeley Electronic Press in its journal Advances in Theoretical Economics.

Volume (Year): 4 (2004)
Issue (Month): 1 ()
Pages: 1157-1157
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Handle: RePEc:bep:theadv:v:4:y:2004:i:1:p:1157-1157

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Paper
- Francesco Squintani, 2001. "Backward Induction and Model Deterioration," RCER Working Papers 484, University of Rochester - Center for Economic Research (RCER). [Downloadable!]

Find related papers by JEL classification:
C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games

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