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On forward induction in money-burning games

Author

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  • Makoto Shimoji

    () (Faculty of Economics, Yokohama National University, Yokohama, Kanagawa 240-8501, JAPAN)

Abstract

We first consider money-burning games studied by Ben-Porath and Dekel [6]. We show that iterative weak dominance and extensive form rationalizability yield the same unique outcome in this class of games. This result suggests that weak dominance captures the forward induction logic implied by extenisve form rationalizability. Next, we consider an example of entry model by Arvan [1] to demonstrate the power of forward induction. In this example, despite the presence of multiple equilibria, forward induction chooses a unique outcome.

Suggested Citation

  • Makoto Shimoji, 2002. "On forward induction in money-burning games," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 19(3), pages 637-648.
  • Handle: RePEc:spr:joecth:v:19:y:2002:i:3:p:637-648
    Note: Received: January 25, 2000; revised version: January 5, 2001
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    Cited by:

    1. Souza, Filipe & Rêgo, Leandro, 2012. "Mixed Equilibrium: When Burning Money is Rational," MPRA Paper 43410, University Library of Munich, Germany.
    2. Perea Andrés, 2003. "Rationalizability and Minimal Complexity in Dynamic Games," Research Memorandum 047, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).

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