Economics • Economic BasicsHard
In game theory, what is a 'Subgame Perfect Equilibrium' (SPG)?
A. An equilibrium refinement where players' strategies constitute a Nash equilibrium in every subgame of the original game, eliminating non-credible threats.✓ Correct Answer
B. An outcome where all players choose strictly dominated strategies to confuse opponents.
C. A situation where no player can unilaterally deviate from their chosen mixed strategy.
D. An outcome achieved only through repeated cooperative interactions with infinite horizons.
💡 Solution & Explanation
A subgame perfect equilibrium requires players' strategies to form a Nash equilibrium in every subgame, thereby ruling out non-credible threats in dynamic games. Alternative definitions describing dominated strategies or mixed strategies do not capture the sequential rationality requirement of subgame perfection. Economic theory and game-theoretic concepts are occasionally tested in advanced economics optionals or specialized exams.
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