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Tenable threats when Nash equilibrium is the norm

Author

Listed:
  • Françoise Forges

    (Université Paris-Dauphine, PSL University, LEDa)

  • József Sákovics

    (Universitat de les Illes Balears
    The University of Edinburgh)

Abstract

We formally assume that players in a game consider Nash Equilibrium (NE) the behavioral norm. In finite games of perfect information this leads to a refinement of NE: Faithful Nash Equilibrium (FNE). FNE is outcome equivalent to NE of the “trimmed” 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 uniqueness of outcome. FNE may violate backward induction when subgame perfection requires play according to the SPE following a deviation from it. We thus provide an alternative view of tenable threats in equilibrium analysis.

Suggested Citation

  • Françoise Forges & József Sákovics, 2022. "Tenable threats when Nash equilibrium is the norm," International Journal of Game Theory, Springer;Game Theory Society, vol. 51(3), pages 589-605, November.
    • Handle: RePEc:spr:jogath:v:51:y:2022:i:3:d:10.1007_s00182-022-00806-3
    DOI: 10.1007/s00182-022-00806-3
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    More about this item

    Keywords

    Backward induction; Credible threat; Equilibrium refinement; Games of perfect information; Sequential rationality;
    All these keywords.

    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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