On the epistemic foundation for backward induction

I characterize backward induction in an epistemic model of perfect information games where players have common certain belief of the consistency of preferences rather than the rationality of choice. In this approach, backward induction corresponds to common certain belief of ‘belief in each subgame of opponent rationality’. At an interpretative level this result resembles the one established by Aumann [6]. By instead imposing common certain belief of ‘belief (only in the whole game) of opponent rationality’, I interpret BenPorath’s [14] support of the Dekel-Fudenberg procedure. JEL Classification Number: C72. Date: 28 December 1999. Acknowledgements: This paper builds in part on joint work with Martin Dufwenberg, who has contributed with helpful suggestions. I also thank Adam Brandenburger, Thorsten Clausing, Stephen Morris and Ylva Søvik for useful comments. A preliminary and abbreviated version of this paper is included in “Logic, Game Theory, and Social Choice – Proceedings of the International Conference, LGS’99” (de Swart, Ed.), Tilburg University Press (1999).