Justification of Stable Equilibria

Justification of Stable Equilibria

By Srihari Govindan, Robert Wilson
2005Working Paper No. 1896

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
game theory, economic theory