chapter  5
Trembles in a game
Pages 43

This chapter splits into two parts, backward induction and repeated games. It talks about backward induction, a way to solve games which is closely linked to Selten's concept of subgame perfect Nash equilibrium (SPNE). The chapter starts with much enthusiasm and moderates this enthusiasm gradually as work proceeds. Backward induction solves a game by starting at the end of the game. The chapter works on the ascending all pay auction. It provides other examples, namely the Ford Boyard sticks game and the negotiation games, where backward induction does a good job. The chapter highlights the backward induction inconsistency, and studies the general sequential all pay auction, where backward induction leads to a strange result. It then turns to repeated games, with a stage game in normal or extensive form. The chapter exposes the classic results for finitely repeated games before turning to infinitely repeated games.