Plausible Equilibria and Backward Payoff-Keeping Behavior
This paper addresses Selten’s chain store paradox. We view this paradox as the phenomenon whereby the subgame perfect equilibria (SPEs) of some games are not credible. To solve this problem, we construct a refinement of Nash equilibria (NEs) called plausible equilibria. If an NE is included in this refinement, then the chain store paradox phenomenon does not occur and this equilibrium is credible. This paper analyzes the properties of this refinement and presents two results. First, every SPE of a zero-sum game with perfect information is plausible. Second, the notion of plausibility removes a bad equilibrium of the coordination game.
KeywordsChain store paradox Plausible equilibria Maximin criteria Backward payoff-keeping behavior Degree of implausibility
We are grateful to Toshiyuki Komiya, Mikio Nakayama, Eishiro Takeda, Masayuki Yao, and an anonymous reviewer for their worthwhile comments and suggestions.
- 7.Scherer F (1980) Industrial market structure and economic performance, 2nd edn. Rand McNally College Publishing Company, ChicagoGoogle Scholar