Backward Induction versus Forward Induction Reasoning

In this paper we want to shed some light on what we mean by backward induction and forward induction reasoning in dynamic games. To that purpose, we take the concepts of common belief in future rationality (Perea, 2010) and extensive form rationalizability (Pearce, 1984; Battigalli, 1997; Battigalli, Siniscalchi, 2002) as possible representatives for backward induction and forward induction reasoning. We compare both concepts on a conceptual, epistemic and an algorithm level, thereby highlighting some of the crucial differences between backward and forward induction reasoning in dynamic games.