Backward induction is 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. Effectively, one determines the Nash equilibrium of each subgame of the original game.
updated: 15 August 2005
HOW TO CITE THIS ENTRY
- To learn more:
- Try the extensive-form game solver to automatically calculate equilibria on the applets page.
- Read news articles about sequential games.
- Take an online quiz on finding equilibria in sequential games.