Tenable threats when Nash equilibrium is the norm

Sakovics, J.; Forges, Françoise

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

Éditeur

University of Edimburg

Titre de la collection

Edinburgh School of Economics Discussion Paper Series

Numéro dans la collection

301

Ville d’édition

Edimburg

Métadonnées

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Auteur(s)

Sakovics, J.
Forges, Françoise
CEntre de REcherches en MAthématiques de la DEcision [CEREMADE]
Laboratoire d'Economie de Dauphine [LEDa]

Résumé (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.