Simplicity of equilibrium is proposed as an important consideration for the selection of a focal point in multi-equilibrium dynamic games. A majority-rule cake division game is analyzed, and the Baron-Ferejohn (Amer. Polit. Sci. Rev. 83(1989), 1181-1206] equilibrium is identified as the unique simplest one. The complexity analysis proposed yields as a by-product a finite method of computing subgame perfect equilibria for infinite games. While backward induction is not applicable to such games, the computation of simplest equilibrium involves the solution of an optimization problem constraint by a finite system of inequalities. Journal of Economic Literature Classification Numbers: C73, C78, D74.
ASJC Scopus subject areas
- Economics and Econometrics