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The Evolutionary Foundations of Backward and Forward Induction

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  • Georg Nöldeke
  • Larry Samuelson

Abstract

We examine the evolutionary foundations of common equilibrium refinement ideas for extensive form games, such as backward and forward induction, by examining the limiting outcome of an evolutionary process driven by stochastic learning and (rare) mutations. We show that the limiting outcome in a class of extensive form games with perfect information always includes the subgame perfect equilibrium outcome, but also contains other outcomes if the subgame perfect outcome fails a (strong) local stability property. The evolutionary system imposes a forward induction requirement that strengthens van Damme's; it selects announcement proof equilibria in a class of cheap talk games; and it yields refinement results in some signaling games. The evolutionary model thus yields results that would often be interpreted as satisfying forward induction, but does not always impose sufficient discipline on actions and conjectures at unreached subgames to yield results consistent with backward induction.

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Bibliographic Info

Paper provided by University of Bonn, Germany in its series Discussion Paper Serie B with number 216.

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Length: 37 pages
Date of creation: Jun 1992
Date of revision:
Handle: RePEc:bon:bonsfb:216

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Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
Fax: +49 228 73 6884
Web page: http://www.bgse.uni-bonn.de

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Cited by:
  1. Michihiro Kandori & Rafael Rob, 1997. "Bandwagon effects and long run technology choice," Levine's Working Paper Archive 1265, David K. Levine.
  2. Banerjee, Abhijit & Weibull, Jörgen W., 1992. "Evolution and Rationality: Some Recent Game-Theoretic Results," Working Paper Series, Research Institute of Industrial Economics 345, Research Institute of Industrial Economics.
  3. Andreas Blume & Douglas V. DeJong & George R. Neumann & N. E. Savin, 2002. "Learning and communication in sender-receiver games: an econometric investigation," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 17(3), pages 225-247.
  4. Nöldeke, Georg & Larry Samuelson, 1994. "Learning to signal in markets," Discussion Paper Serie B, University of Bonn, Germany 271, University of Bonn, Germany.
  5. Weibull, Jörgen W., 1992. "An Introduction to Evolutionary Game Theory," Working Paper Series, Research Institute of Industrial Economics 347, Research Institute of Industrial Economics.
  6. Andreas Blume, 1995. "Information Transmission and Preference Similarity," Game Theory and Information, EconWPA 9504002, EconWPA, revised 29 May 1996.
  7. Blume, Andreas & Dieckmann, Tone, 1998. "Learning to Communicate in Cheap-Talk Games," Working Papers, University of Iowa, Department of Economics 98-12, University of Iowa, Department of Economics.

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