A Refinement of Sequential Equilibrium

Abstract

The author proposes a refinement of seq uential equilibrium for extensive form games by generalizing a restri ction proposed for signaling games in Cho and D. M. Kreps (1987). The restriction is that beliefs must not assign positive weight to the p ossibilities that can be excluded through reasonable introspection ba sed on the data available as common knowledge. A new technique is dev eloped in order to prove the existence of forward induction equilibri um, which consists of two steps. First, the author establishes the ge neric existence of forward induction equilibrium by exploiting the re sults of E. Kohlberg and J. F. Mertens (1986). Then, he shows that th e forward induction equilibrium correspondence is upper hemicontinuou s in the outcome space with respect to the changes of parameters of t he game. Copyright 1987 by The Econometric Society.