Subgame perfect equilibrium is an economics term used in game theory to describe an equilibrium such that player's strategies constitute a Nash equilibrium in every subgame of the original game. It may be found by backward induction, an iterative process for solving finite extensive form or sequential games. First, one determines the optimal strategy of the player who makes the last move of the game. Then, the optimal action of the next to last moving player is determined assuming the last player's action as given. The process continues until all player's actions have been determined. Subgame perfect equilibria eliminate noncredible threats. Economics (deriving from the Greek words οίκω [oeko], house, and νέμω [nemo], distribute) is the social science that studies the allocation of scarce resources through measurable variables. ... Game theory is a branch of applied mathematics that uses models to study interactions with formalised incentive structures (games). It has applications in a variety of fields, including economics, international relations, evolutionary biology, political science, and military strategy. ... For the 2002 science fiction movie see Equilibrium (2002 movie) Equilibrium or balance is any of a number of related phenomena in the natural and social sciences. ... In game theory, the Nash equilibrium (named after John Nash) is a kind of optimal strategy for games involving two or more players, whereby the players reach an outcome to mutual advantage. ... A minigame is a (usually short) segment of a video game that uses a different style of gameplay than the rest of the game. ... An extensive form game is a specification of a game in game theory. ...
It follows that the open-loop Nash solution requires that each country pre-commits itself to a path of investment in arms and that the expectations of each other's paths of investment are correct in equilibrium.
An equilibrium solution is subgame-perfect if for each subgame over a remainder of the planning period, the relevant part of the solution is also a Nashequilibrium.
Subgameperfectness rules out threat equilibria, which rely on information patterns with memory, and equilibria which imply future investments that are not rational to carry out if called upon to do so in the future.
Perfect Bayesian equilibrium (PBE) was invented in order to refine Bayesian Nashequilibrium in a way that is similar to how subgame-perfect Nashequilibrium refines Nashequilibrium.
To determine which of these Nash equilibria are subgameperfect, we use the extensive form representation to define the game's subgames.
The crucial new feature of this equilibrium concept is due to Kreps and Wilson (1982): beliefs are elevated to the level of importance of strategies in the definition of equilibrium.
Feeds |
Contact