3. Solution Concepts
A portion of an extensive form game which starts from one of the decision nodes and
includes all subsequent nodes.
Subgame-Perfect Equilibrium (SPE):
When an equilibrium satisfies sequential rationality, we
call it Subgame Perfect. SPE require that all players play best-responses (Nash Equilibria) in each
We find SPE by solving the extensive form game backwards i.e. from the
Optimal choices in the last subgame would determine the payoffs in the second-
to-last subgames, which allow us to determine the optimal choices in the second-to-last subgames.
Iteratively applying this procedure gets us to the SPE.
Concepts in Property Law
Principles for Establishing Ownership
Property rights determined by order of arrival.
Pro: Simple to determine who possessed property first. Easy to administer.