chapter  3
31 Pages

DYNAMIC GAMES

Backward induction and some extensive form refinements of the Nash equilibrium

This chapter looks at games which have a dynamic structure; that is, games in which one player makes a move after the other (rather than choosing strategies simultaneously). In these situations, game theory needs to specify the precise protocol of moves. Diagrammatically dynamic games resemble tree diagrams (recall section 2.2) which are known formally as the extensive form. So the extensive form representation is appropriate for a dynamic game, whereas the matrix representation (or, more formally, the normal form) which we have been using so far is suitable for interactions in which players choose simultaneously.