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Question & Answer
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Every Nash equilibrium is also a subgame perfect equilibrium.
Every subgame perfect equilibrium is also a Nash equilibrium.
There are situations where a Nash equilibrium does not correspond to any subgame perfect equilibrium.
Both Nash equilibrium and subgame perfect equilibrium are irrelevant in zero-sum games.
Understanding the Answer
Let's break down why this is correct
Subgame perfect equilibrium means the strategy works in every part of the game. Other options are incorrect because Some students think every Nash equilibrium is also subgame perfect; Some think a Nash equilibrium can never be a subgame perfect equilibrium.
Key Concepts
Game Theory and Backward Induction
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Deep Dive: Game Theory and Backward Induction
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Definition
Game theory is a mathematical framework used to analyze strategic interactions among rational decision-makers. Backward induction is a method used to solve sequential move games, where players make decisions based on the observed actions of others, as illustrated by the game tree format. This concept is significant in business as it helps understand competitive behavior and decision-making processes in various strategic situations.
Topic Definition
Game theory is a mathematical framework used to analyze strategic interactions among rational decision-makers. Backward induction is a method used to solve sequential move games, where players make decisions based on the observed actions of others, as illustrated by the game tree format. This concept is significant in business as it helps understand competitive behavior and decision-making processes in various strategic situations.
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