A subgame perfect Nash equilibrium is an equilibrium such that players' strategies constitute a Nash equilibrium in every subgame of the original game. It may be found by backward induction, an iterative process for solving finite extensive form or sequential games. First, one determines the optimal strategy of the player who makes the last move of the game. Then, the optimal action of the next-to-last moving player is determined taking the last player's action as given. The process continues in this way backwards in time until all players' actions have been determined.
Subgame perfect equilibria eliminate noncredible threats.
updated 22 August 2006
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