“Forward Induction Equilibrium” by Priscilla T. Y. MAN
Priscilla T. Y. MAN
University of Chicago
Forward induction is the notion that players in a game assume, even when confronted with an unexpected event, that their opponents chose rationally in the past and will choose rationally in the future. This paper modifies Govindan and Wilson's (2009, Econometrica 77(1), 1-28) definition of forward induction and constructs an admissible, invariant forward induction equilibrium concept for general games using normal form perfect equilibrium. Forward induction equilibrium according to this new definition exists for all finite, generic extensive form games with perfect recall. It does not satisfy backward induction. Yet for generic extensive form games the set of forward induction outcomes contains an invariant sequential equilibrium outcome. Forward induction is not equivalent to iterative elimination of strategies dominated at the equilibrium value. In signaling games, a forward induction equilibrium survives most existing equilibrium refinements.