Subgame-Perfect Equilibria in Stochastic Timing Games
Year: 2014
Type: preprint
Abstract: We introduce a notion of subgames for stochastic timing games and the related notion of subgame-perfect equilibrium in possibly mixed strategies. While a good notion of subgame-perfect equilibrium for continuous-time games is not available in general, we argue that our model is the appropriate version for timing games. We show that the notion coincides with the usual one for discrete-time games. Many timing games in continuous time have only equilibria in mixed strategies -- in particular preemption games, which often occur in the strategic real option literature. We provide a sound foundation for some workhorse equilibria of that literature, which has been lacking as we show. We obtain a general constructive existence result for subgame-perfect equilibria in preemption games and illustrate our findings by several explicit applications.
Authors: Riedel, Frank, Steg, Jan-Henrik
Institutions: Bielefeld University, University of Johannesburg
Language: English
Topic: Game Theory and Applications
Field: Decision Sciences
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W3123787005