Perfect Bayesian equilibrium and sequential equilibrium

Drew Fudenberg*, Jean Tirole

*Corresponding author for this work

    Research output: Contribution to journalArticlepeer-review

    283 Scopus citations

    Abstract

    We introduce a formal definition of perfect Bayesian equilibrium (PBE) for multi-period games with observed actions. In a PBE, (P) the strategies form a Bayesian equilibrium for each continuation game, given the specified beliefs, and (B) beliefs are updated from period to period in accordance with Bayes rule whenever possible, and satisfy a "no-signaling-what-you-don't-know" condition. PBE is equivalent to sequential equilibrium if each player has only two types, or there are only two periods, but differs otherwise. Equivalence is restored by requiring that (B) apply to the relative probabilities of types with posterior probability zero.

    Original languageEnglish (US)
    Pages (from-to)236-260
    Number of pages25
    JournalJournal of Economic Theory
    Volume53
    Issue number2
    DOIs
    StatePublished - Apr 1991

    ASJC Scopus subject areas

    • Economics and Econometrics

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