Justification of Stable Equilibria

Stanford GSB Working Paper No. 1896

13 Pages Posted: 23 Jul 2005

See all articles by Srihari Govindan

Srihari Govindan

University of Rochester

Robert Wilson

Stanford Graduate School of Business

Date Written: June 2005

Abstract

Two assumptions are used to justify selection of equilibria in stable sets. One assumption requires that a selected set is invariant to addition of redundant strategies. The other is a strong version of backward induction. Backward induction is interpreted as the requirement that behavior strategies in an extensive-form game are sequentially rational and conditionally admissible at every information set; viz., quasi-perfect as defined by van Damme. The strong version requires 'truly' quasi-perfect, in that every action perturbation selects a quasi-perfect equilibrium in the set. For two-player games we also provide an exact characterization of stable sets.

Keywords: Economic theory, game theory

JEL Classification: C72

Suggested Citation

Govindan, Srihari and Wilson, Robert B., Justification of Stable Equilibria (June 2005). Stanford GSB Working Paper No. 1896, Available at SSRN: https://ssrn.com/abstract=757885 or http://dx.doi.org/10.2139/ssrn.757885

Srihari Govindan

University of Rochester ( email )

Department of Economics
Rochester, NY NY 14627
United States
5852757214 (Phone)

Robert B. Wilson (Contact Author)

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
650-723-8620 (Phone)
650-725-7979 (Fax)

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