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Tenable threats when Nash equilibrium is the norm

Author

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  • J. Sakovics
  • Françoise Forges

    (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique, LEDa - Laboratoire d'Economie de Dauphine - IRD - Institut de Recherche pour le Développement - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

Abstract

We formally assume that players in a game consider Nash Equilibrium (NE) thebehavioral norm. In önite games of perfect information this leads to a reönementof NE: Faithful Nash Equilibrium (FNE). FNE is outcome equivalent to NE of theìtrimmedî game, obtained by restricting the original tree to its NE paths. Thus,it always exists but it need not be unique. Iterating the norm ensures uniquenessof outcome. FNE may violate backward induction when subgame perfection requires play according to the SPE following a deviation from it. We thus provide analternative view of tenable threats in equilibrium analysis.

Suggested Citation

  • J. Sakovics & Françoise Forges, 2022. "Tenable threats when Nash equilibrium is the norm," Working Papers hal-03537845, HAL.
    • Handle: RePEc:hal:wpaper:hal-03537845
    Note: View the original document on HAL open archive server: https://hal.science/hal-03537845
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    More about this item

    Keywords

    Nash Equilibrium; threat;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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