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  5. Backward Induction Reasoning beyond Backward Induction

American Economic Journal:
Microeconomics

ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)

Backward Induction Reasoning beyond Backward Induction

  • Emiliano Catonini
  • Antonio Penta
American Economic Journal: Microeconomics (Forthcoming)

Abstract

Backward Induction is only defined for perfect-information games, but its logic is also invoked in many concepts for imperfect or incomplete information games. Yet, the meaning of ‘backward induction reasoning’ is not clear in these settings, and we lack a way to capture the essence of Backward Induction without assuming equilibrium. We introduce Backwards Rationalizability, a non-equilibrium solution concept for incompelte information games which we argue distills the logic of backward induction reasoning, and show several of its properties, and discuss a few applications, including a new version of Lipnowski and Sadler's (2019) peer-confirming equilibrium.

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