SFB 303 Discussion Paper No. A - 128

Author: Damme, Eric van
Title: Stable Equilibria and Forward Induction
Abstract: This paper is an attempt to throw some light on the issues of whether requiring an equilibrium to be stable (in the sense of Kohlberg and Mertens) is necessary for self-enforcingness and what the implications of such a requirement are. In the first part it is discussed which role "mistakes" play in the stability concept and it is argued that stability does not fully capture the logic of forward induction. The second half is devoted to specific examples that show the power of stability and that indicate that a large part of noncooperative game theory may have to be modified in an essential way if one accepts stable equilibrium as the solution concept.
Creation-Date: February 1988
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