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The Complete Idiot's Guide to Game Theory by Edward Rosenthal, Ph.D., Edward C. Rosenthal

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Narrowing Down the Solution Concept

The Nobel laureate Reinhard Selten had an inspiration when he considered the problem of multiple equilibria. Many (but not all) nonzero sum games have more than one equilibrium to choose among, and as you have seen, some of them are better or worse for one or both of the players. On top of that, certain equilibria seem to make more sense than others. Selten’s idea was to try to refine the equilibrium notion in order to keep the sensible solutions and discard the doubtful ones.
To provide a foundation for his idea, let’s first discuss the idea of credibility. If a player communicates a certain intention, are they to be trusted? A good vehicle for introducing the role of credible statements is an extensive ...

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