Subgame-perfect equilibria in stochastic timing games

We develop a notion of subgames and the related notion of subgame-perfect equilibrium – possibly in mixed strategies – for stochastic timing games. To capture all situations that can arise in continuous-time models, it is necessary to consider stopping times as the starting dates of subgames. We gen...

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Bibliographic Details
Published in:Journal of mathematical economics 2017-10, Vol.72, p.36-50
Main Authors: Riedel, Frank, Steg, Jan-Henrik
Format: Article
Language:English
Subjects:
Continuous time
Equilibrium
Game theory
Games
Mixed strategies
Optimal stopping
Stochastic games
Stochastic models
Stochastic processes
Studies
Subgame-perfect equilibrium
Timing games
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Summary:We develop a notion of subgames and the related notion of subgame-perfect equilibrium – possibly in mixed strategies – for stochastic timing games. To capture all situations that can arise in continuous-time models, it is necessary to consider stopping times as the starting dates of subgames. We generalize Fudenberg and Tirole’s (Rev. Econom. Stud. 52, 383–401, 1985) mixed-strategy extensions to make them applicable to stochastic timing games and thereby provide a sound basis for subgame-perfect equilibria of preemption games. Sufficient conditions for equilibrium existence are presented, and examples illustrate their application as well as the fact that intuitive arguments can break down in the presence of stochastic processes with jumps.
ISSN:0304-4068
1873-1538
DOI:10.1016/j.jmateco.2017.06.006