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Decision-Theoretic Forward Induction

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  • Govindan, Srihari

    (U of Iowa)

  • Wilson, Robert B.

    (Stanford U)

Abstract

A player's pure strategy is called relevant for an outcome of a game in extensive form with perfect recall if there exists a weakly sequential equilibrium with that outcome for which the strategy is an optimal reply at every information set it does not exclude. The outcome satisfies forward induction if it results from a weakly sequential equilibrium in which players' beliefs assign positive probability only to relevant strategies at each information set reached by a profile of relevant strategies. We prove that if there are two players and payoffs are generic then an outcome satisfies forward induction if every game with the same reduced normal form after eliminating redundant pure strategies has a sequential equilibrium with an equivalent outcome. Thus in this case forward induction is implied by decision-theoretic criteria.

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Bibliographic Info

Paper provided by Stanford University, Graduate School of Business in its series Research Papers with number 1986.

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Date of creation: Jan 2008
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Handle: RePEc:ecl:stabus:1986

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  3. Srihari Govindan & Robert Wilson, 2007. "'On Forward Induction," Levine's Working Paper Archive 321307000000000825, David K. Levine.
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  9. Battigalli, Pierpaolo & Siniscalchi, Marciano, 2002. "Strong Belief and Forward Induction Reasoning," Journal of Economic Theory, Elsevier, vol. 106(2), pages 356-391, October.
  10. Gul, Faruk & Sonnenschein, Hugo, 1988. "On Delay in Bargaining with One-Sided Uncertainty," Econometrica, Econometric Society, vol. 56(3), pages 601-11, May.
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  23. Govindan, Srihari & Wilson, Robert, 2001. "Direct Proofs of Generic Finiteness of Nash Equilibrium Outcomes," Econometrica, Econometric Society, vol. 69(3), pages 765-69, May.
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Cited by:
  1. Heller, Yuval & Winter, Eyal, 2013. "Rule Rationality," MPRA Paper 48746, University Library of Munich, Germany.

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