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This video shows how to look for a subgame perfect equilibrium. We start by explaining what subgames are, then look for a Nash equilibrium, and finally look for the subgame equilibrium.

Related videos:
-Repeated games:
-Nash equilibrium:

Related articles:
-Nash equilibrium:
-Game theory:

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15 thoughts on “D.8 Subgame equilibrium | Game Theory – Microeconomics

  1. The normal form representation of the game is absolutely wrong. Player 2 must have 4 strategies. L & R are only the actions of player 2, his strategies are LL, LR, RL & RR.

  2. why will player 1 choose (3,1)? I didn't understand as up is the dominant strategy for him then why will he choose down ? and why not (5,2) ?

  3. Hi
    according to the solution you show that the sub-game perfect is not Nash equilibrium
    D, R in the table. But according to my understand subgame perfect MUST be nash for the initial game

    I think your table should have been built with 4 columns LL LR RL RR then you could see that 3,1 is a nash equilibrium
    for the game and it is also subgame perfect.

    the solution should be

    D, LR which means down for player 1 and Left if player 1 choose Up and Right if he choose Down

  4. + Policonomics, I have a quick question. If the problem can be solved by a 2 X 2 table, then why do we need use to go for a decision tree ? We could have drawn a 2 X 2 table and calculate nash equlibria and solved it.

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