The Refined Best Reply Correspondence and Backward Induction
16 Pages Posted: 12 Sep 2016
Date Written: September 8, 2016
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: Suggested Citation