The Refined Best Reply Correspondence and Backward Induction

16 Pages Posted: 12 Sep 2016

See all articles by Dieter Balkenborg

Dieter Balkenborg

University of Exeter - Department of Economics

Josef Hofbauer

University of Vienna - Department of Mathematics

Christoph Kuzmics

University of Graz - Department of Economics

Date Written: September 8, 2016

Abstract

Fixed points of the (most) refined best reply correspondence, introduced in Balkenborg, Hofbauer, and Kuzmics (2013), in the agent normal form of extensive form games with perfect recall have a remarkable property. They induce fixed points of the same correspondence in the agent normal form of every subgame. Furthermore, in a well-defined sense, fixed points of this correspondence refine even trembling-hand perfect equilibria, while, on the other hand, reasonable equilibria that are not weak perfect Bayesian equilibria would be fixed points of this correspondence.

Keywords: subgame perfection, Nash equilibrium refinements, backward induction, sequential rationality

JEL Classification: C62, C72, C73

Suggested Citation

Balkenborg, Dieter and Hofbauer, Josef and Kuzmics, Christoph, The Refined Best Reply Correspondence and Backward Induction (September 8, 2016). Available at SSRN: https://ssrn.com/abstract=2836853 or http://dx.doi.org/10.2139/ssrn.2836853

Dieter Balkenborg

University of Exeter - Department of Economics ( email )

Streatham Court
Exeter EX4 4PU
United Kingdom

Josef Hofbauer

University of Vienna - Department of Mathematics ( email )

Oskar-Morgenstern-Platz 1
A-1090 Vienna
Austria

Christoph Kuzmics (Contact Author)

University of Graz - Department of Economics ( email )

Universitaetsstrasse 15
RESOWI - F4
Graz, 8010
Austria

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