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The foundation of stability in extensive games with perfect information

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  • Luo, Xiao

Abstract

This paper studies the decision-theoretic foundation for the notion of stability in the dynamic context of strategic interaction. We formulate and show that common knowledge of rationality implies a "stable" pattern of behavior in extensive games with perfect information. In the "generic" case, our approach is consistent with Aumann's [Aumann, R.J., 1995. Backward induction and common knowledge of rationality. Games and Economic Behavior 8, 6-19] result that common knowledge of rationality leads to the backward induction outcome.

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  • Luo, Xiao, 2009. "The foundation of stability in extensive games with perfect information," Journal of Mathematical Economics, Elsevier, vol. 45(12), pages 860-868, December.
    • Handle: RePEc:eee:mateco:v:45:y:2009:i:12:p:860-868
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