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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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    References listed on IDEAS

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    Cited by:

    1. Evdokimov, Piotr & Rustichini, Aldo, 2016. "Forward induction: Thinking and behavior," Journal of Economic Behavior & Organization, Elsevier, pages 195-208.
    2. Dufwenberg, Martin & Köhlin, Gunnar & Martinsson, Peter & Medhin, Haileselassie, 2016. "Thanks but no thanks: A new policy to reduce land conflict," Journal of Environmental Economics and Management, Elsevier, pages 31-50.
    3. repec:eee:jetheo:v:169:y:2017:i:c:p:489-516 is not listed on IDEAS
    4. Dufwenberg, Martin & Köhlin, Gunnar & Martinsson, Peter & Medhin, Haileselassie, 2016. "Thanks but no thanks: A new policy to reduce land conflict," Journal of Environmental Economics and Management, Elsevier, pages 31-50.
    5. Sun, Lan, 2016. "Hypothesis testing equilibrium in signaling games," Center for Mathematical Economics Working Papers 557, Center for Mathematical Economics, Bielefeld University.
    6. Evans, Martin, 2014. "Forex Trading and the WMR Fix," MPRA Paper 58151, University Library of Munich, Germany.
    7. Anderlini, Luca & Gerardi, Dino & Lagunoff, Roger, 2016. "Auditing, disclosure, and verification in decentralized decision problems," Journal of Economic Behavior & Organization, Elsevier, pages 393-408.

    More about this item

    Keywords

    Forward induction; Invariance; Equilibrium refinement;

    JEL classification:

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

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