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The Dynamic (In)Stability of Backwards Induction

  • R. Cressman, K.H. Schlag

The analysis of the replicator dynamic in generic perfect information games yields the following results. In the long run, players play a Nash equilibrium provided that initially all strategies are present. There is at most one ``stable'' component (formally, an interior asymptotically stable set), play in this component will follow the backwards induction path. Existence of such a component is guaranteed in games with at most three consecutive decision nodes. An example of a ``longer'' game is provided where some trajectories starting close to the backwards induction component lead away and never come back.

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Paper provided by University of Bonn, Germany in its series Discussion Paper Serie B with number 347.

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Date of creation: Dec 1995
Date of revision:
Handle: RePEc:bon:bonsfb:347
Contact details of provider: Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
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