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Forward induction equilibrium

  • Man, Priscilla T.Y.

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.

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Article provided by Elsevier in its journal Games and Economic Behavior.

Volume (Year): 75 (2012)
Issue (Month): 1 ()
Pages: 265-276

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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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  1. van Damme,Eric, 1987. "Stable equilibria and forward induction," Discussion Paper Serie A 128, University of Bonn, Germany.
  2. Srihari Govindan & Robert Wilson, 2009. "Axiomatic Equilibrium Selection for Generic two-player games," Levine's Working Paper Archive 814577000000000231, David K. Levine.
  3. George J. Mailath, 1993. "Normal Form Structures in Extensive Form Games," Discussion Papers 1041, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  4. McLennan, Andrew, 1985. "Justifiable Beliefs in Sequential Equilibrium," Econometrica, Econometric Society, vol. 53(4), pages 889-904, July.
  5. Drew Fudenberg & Eddie Dekel, 1987. "Rational Behavior with Payoff Uncertainty," Working papers 471, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Gul, Faruk & Pearce, David G., 1996. "Forward Induction and Public Randomization," Journal of Economic Theory, Elsevier, vol. 70(1), pages 43-64, July.
  7. Shimoji, Makoto & Watson, Joel, 1998. "Conditional Dominance, Rationalizability, and Game Forms," Journal of Economic Theory, Elsevier, vol. 83(2), pages 161-195, December.
  8. Reny, Philip J, 1992. "Backward Induction, Normal Form Perfection and Explicable Equilibria," Econometrica, Econometric Society, vol. 60(3), pages 627-49, May.
  9. Elmes Susan & Reny Philip J., 1994. "On the Strategic Equivalence of Extensive Form Games," Journal of Economic Theory, Elsevier, vol. 62(1), pages 1-23, February.
  10. Govindan, Srihari & Robson, Arthur J., 1998. "Forward Induction, Public Randomization, and Admissibility," Journal of Economic Theory, Elsevier, vol. 82(2), pages 451-457, October.
  11. Battigalli, Pierpaolo & Siniscalchi, Marciano, 2002. "Strong Belief and Forward Induction Reasoning," Journal of Economic Theory, Elsevier, vol. 106(2), pages 356-391, October.
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