Sequential equilibrium
A perfect Bayesian equilibrium whose beliefs off the expected path are additionally required to be the limit of beliefs derived from strategies that tremble.
Often misread asUsing perfect Bayesian and sequential as interchangeable names for one idea, on the grounds that both pair strategies with beliefs.
How to see it
Perfect Bayesian with the off path beliefs tied down
Take a perfect Bayesian equilibrium and ask one further thing of the beliefs: that they could have arisen as the limit of beliefs in versions of the game where every move sometimes happens by accident. That extra demand removes off path beliefs that were simply invented to hold the equilibrium together.
The checkThey pair strategies with beliefs the same way and differ only in how much is demanded of beliefs off the path. Every sequential equilibrium is a perfect Bayesian equilibrium, and in simple signalling games the two sets often coincide, which is why the difference is so easy to lose.
Try itSay which of the two concepts is the stronger, then name the single condition that differs. If the best you can manage is the word beliefs, go back and state what is additionally required of them.
Know these first
Easily confused with
Sources
- Kreps, D. M. & Wilson, R. (1982). Econometrica 50(4), 863-894.
- Fudenberg, D. & Tirole, J. (1991). MIT Press.
- Osborne, M. & Rubinstein, A. (1994). MIT Press.