What is the difference between subgame perfect Nash-equilibrium and backwards induction?

$\begingroup$

I cannot find any difference, except for that the subgame perfect Nash-equilibrium yields a strategy rather than an action, between those two solution concepts. To me, it seems like you always just use backwards induction when finding the subgame perfect Nash-equilibrium. If that is the case, why would you spend time defining two things that really are the same (if I am not being wrong, which I guess I am)?

$\endgroup$

1 Answer

$\begingroup$

They are not really the same thing. Sub-game perfectness of a solution like the Nash equilibrium is a desirable consistency property of a solution concept, i.e., no sub-group of players should have an incentive to deviate from a Nash-equilibrium to play from a particular node onward their own sub-game to improve their payoffs.

However, backwards induction is a solution procedure to compute Nash-equilibria of a game while making use of the desirable feature of sub-game perfectness of that solution concept.

$\endgroup$ 10

Your Answer

Sign up or log in

Sign up using Google Sign up using Facebook Sign up using Email and Password Submit

Post as a guest

Post Your Answer Discard

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy