Abstract
In this chapter we explore sequential-move games in which players observe all relevant information, and describe how to solve these games by using backward induction, which yields the set of Subgame Perfect Nash equilibria (SPNE). Intuitively, every player anticipates the optimal actions that players acting in subsequent stages will select, and chooses his actions in the current stage accordingly.
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Notes
- 1.
Recall from Chap. 2, that you can find this equilibrium output by inserting best response function qj (qi) into qi (qj), and then solving for qi.
- 2.
See exercises in Chap. 2 for more examples of this underlining process.
- 3.
For instance, a strategy Develop/Develop for firm 2 reflects that this company chooses to develop apps, both after observing that firm 1 develops apps and after observing that firm 1 does not develop.
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Munoz-Garcia, F., Toro-Gonzalez, D. (2019). Sequential-Move Games with Complete Information. In: Strategy and Game Theory. Springer Texts in Business and Economics. Springer, Cham. https://doi.org/10.1007/978-3-030-11902-7_4
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DOI: https://doi.org/10.1007/978-3-030-11902-7_4
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