Backwards Induction versus Forward Induction Reasoning

In this paper we want to shed some further light on what we mean by backwards 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 and Siniscalchi (2002)) as possible representatives for backwards induction and forward induction reasoning. We compare both concepts on an epistemic and an algorithm level, thereby highlighting some of the crucial di¤erences between backwards and forward induction reasoning in dynamic games. Kew words and phrases: Epistemic game theory, backwards induction, forward induction, algorithms. Journal of Economic Literature Classi…cation: C72 Contact information: Maastricht University, Department of Quantitative Economics P.O. Box 616, 6200 MD Maastricht, The Netherlands E-mail: [email protected] Webpage: http://www.personeel.unimaas.nl/a.perea/