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A Refinement Of Perfect Equilibria Based On Substitute Sequences

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Executive Summary

The authors propose an equilibrium refinement of strict perfect equilibrium for the finite normal form games, which is not known in the literature. Okada came up with the idea of strict perfect equilibrium by strengthening the main definition of a perfect equilibrium, due to Selten [14]. They consider the alternative (and equivalent) definition of perfect equilibrium, based on the substitute sequences, as appeared in Selten [14]. They show that by strengthening and modifiyng this definition slightly, one can obtain a refinement stronger than strict perfectness. They call the new refinement strict substitute perfect equilibrium. The main advantage of this solution concept is that it reflects the local dominance of an equilibrium point. An example is provided to show that a strict perfect equilibrium may fail to be strict substitute perfect.

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