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Forward induction equilibrium

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  • Man, Priscilla T.Y.

Abstract

Forward induction is the notion that players in a game assume, even when confronted with an unexpected event, that their opponents chose rationally. It is often motivated by invariance, namely, that the normal form game captures all strategically relevant information. To be consistent with this motivation, this paper proposes a normal form forward induction equilibrium definition by constructing outcome spaces for normal form games. Forward induction equilibrium exists for all finite extensive form games with perfect recall. It may not satisfy backward induction. The lack of set inclusion relationship between forward induction equilibria and extensive form rationalizable strategy profiles illuminates on the differences between the two concepts.

Suggested Citation

  • Man, Priscilla T.Y., 2012. "Forward induction equilibrium," Games and Economic Behavior, Elsevier, vol. 75(1), pages 265-276.
  • Handle: RePEc:eee:gamebe:v:75:y:2012:i:1:p:265-276
    DOI: 10.1016/j.geb.2011.12.004
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    3. Perea, Andrés, 2017. "Forward induction reasoning and correct beliefs," Journal of Economic Theory, Elsevier, vol. 169(C), pages 489-516.
    4. Sun, Lan, 2016. "Hypothesis testing equilibrium in signaling games," Center for Mathematical Economics Working Papers 557, Center for Mathematical Economics, Bielefeld University.
    5. Catonini, Emiliano, 2019. "Rationalizability and epistemic priority orderings," Games and Economic Behavior, Elsevier, vol. 114(C), pages 101-117.
    6. Luca Anderlini & Dino Gerardi & Roger Lagunoff, 2014. "Do Actions Speak Louder Than Words? Auditing, Disclosure, and Verification in Organizations," Working Papers gueconwpa~14-14-04, Georgetown University, Department of Economics, revised 13 Jun 2015.
    7. Anderlini, Luca & Gerardi, Dino & Lagunoff, Roger, 2016. "Auditing, disclosure, and verification in decentralized decision problems," Journal of Economic Behavior & Organization, Elsevier, vol. 131(PA), pages 393-408.

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    More about this item

    Keywords

    Forward induction; Invariance; Equilibrium refinement;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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