Abstract
In a sequential game, subgame perfectness selects equilibria such that players choose mutually best replies not only at the beginning of the game but also in every subgame. Consequentially, neither player has an incentive to deviate from the chosen equilibrium strategy in the course of the game. The sequence of moves of a strategy from the beginning until the final nodes is structured in a hierarchy of subgames. A true subgame starts with an information set containing one node only, i.e., there is perfect information. A market entry game is analyzed with a competitor deciding on whether to enter a monopoly market with the possibility that the monopolist will “fight,” e.g., lower the price such that both agents suffer from losses. Further, the equilibria of the Ultimatum Game and the Stag Hunt Game are discussed—also with respect to social trust. In this context, a model is presented to illustrate how reciprocity works.
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Notes
- 1.
In a zero-sum game, the gain of player 1 is equal to the loss of the player 2. In economics (and in the economy), such pure conflict situations do hardly ever apply. Often both players can win at the same time, however different amounts, or they both lose.
- 2.
See Sect. 6.7 for further details on chess strategies.
- 3.
The Hadzas are a tribe of hunters living in Tanzania. Marlowe (2004) studied how members of this tribe behaved in Ultimatum Game experiments. The results were somewhat surprising.
- 4.
This is the message of the article “How Werner Güth’sultimatum game shaped our understanding of social behavior” by van Damme et al. (2014).
- 5.
Of course, the offer of 40, compared to accepting 20, could also be a signal of Hobbesian uncertainty, i.e., of not knowing the preferences of the other(s).
- 6.
See Inglehart et al. (2004)fordetailedreferences.
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Holler, M.J., Klose-Ullmann, B. (2020). Step-by-Step: The Subgame-Perfect Equilibrium. In: Scissors and Rock. Springer, Cham. https://doi.org/10.1007/978-3-030-44823-3_8
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