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Tenable threats when Nash equilibrium is the norm

Sakovics, J.; Forges, Françoise (2021), Tenable threats when Nash equilibrium is the norm. https://basepub.dauphine.psl.eu/handle/123456789/22455

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Type
Document de travail / Working paper
Date
2021
Publisher
University of Edimburg
Series title
Edinburgh School of Economics Discussion Paper Series
Series number
301
Published in
Edimburg
Pages
21
Metadata
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Author(s)
Sakovics, J.
Forges, Françoise
CEntre de REcherches en MAthématiques de la DEcision [CEREMADE]
Laboratoire d'Economie de Dauphine [LEDa]
Abstract (EN)
We formally assume that players in a game consider Nash Equilibrium (NE) thebehavioral norm. In önite games of perfect information this leads to a reönementof NE: Faithful Nash Equilibrium (FNE). FNE is outcome equivalent to NE of theìtrimmedî 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 uniquenessof outcome. FNE may violate backward induction when subgame perfection requires play according to the SPE following a deviation from it. We thus provide analternative view of tenable threats in equilibrium analysis.
Subjects / Keywords
Nash Equilibrium; threat
JEL
D91 - Intertemporal Household Choice; Life Cycle Models and Saving
D83 - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
D01 - Microeconomic Behavior: Underlying Principles
C73 - Stochastic and Dynamic Games; Evolutionary Games; Repeated Games
C72 - Noncooperative Games