Tenable threats when Nash equilibrium is the norm

J. Sakovics , Françoise Forges (1, 2)

1 CEREMADE - CEntre de REcherches en MAthématiques de la DEcision
2 LEDa - Laboratoire d'Economie de Dauphine

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.

Mots clés: Nash Equilibrium; threat

Domaines: Économie et finance quantitative [q-fin]

J. Sakovics, Françoise Forges. Tenable threats when Nash equilibrium is the norm. 2022. ⟨hal-03537845⟩