Economics Game Theory Questions
Subgame perfect equilibrium is a solution concept in game theory that applies to sequential move games. In these games, players take turns making decisions, and the outcome of each decision affects the subsequent decisions and payoffs.
A subgame perfect equilibrium is a strategy profile in which every player's strategy is optimal not only at the beginning of the game but also at every subsequent subgame. A subgame refers to any part of the game that can be reached by ignoring the previous moves and starting from a specific point.
To determine a subgame perfect equilibrium, we need to analyze the game from the end backwards. We consider each subgame separately and determine the optimal strategy for each player at each stage. The strategy must be optimal not only for that particular subgame but also for the entire game.
In a subgame perfect equilibrium, players' strategies are consistent with their beliefs about the other players' strategies, and no player has an incentive to deviate from their strategy at any point in the game. This equilibrium concept ensures that players are making rational decisions at every stage, taking into account the potential future actions and payoffs.
Overall, subgame perfect equilibrium provides a solution concept for sequential move games by identifying strategies that are optimal not only at the beginning but also at every subsequent stage of the game.