English

A Characterization of Sequential Equilibrium through $\varepsilon$-Perfect $\gamma$-Sequential Equilibrium with Local Sequential Rationality and Its Computation

Theoretical Economics 2025-03-26 v1

Abstract

Sequential equilibrium requires a consistent assessment and sequential rationality, where the consistent assessment emerges from a convergent sequence of totally mixed behavioral strategies and associated beliefs. However, the original definition lacks explicit guidance on constructing such convergent sequences. To overcome this difficulty, this paper presents a characterization of sequential equilibrium by introducing ε\varepsilon-perfect γ\gamma-sequential equilibrium with local sequential rationality. For any γ>0\gamma>0, we establish a perfect γ\gamma-sequential equilibrium as a limit point of a sequence of εk\varepsilon_k-perfect γ\gamma-sequential equilibrium with εk0\varepsilon_k\to 0. A sequential equilibrium is then derived from a limit point of a sequence of perfect γq\gamma_q-sequential equilibrium with γq0\gamma_q\to 0. This characterization systematizes the construction of convergent sequences and enables the analytical determination of sequential equilibria and the development of a polynomial system serving as a necessary and sufficient condition for ε\varepsilon-perfect γ\gamma-sequential equilibrium. Exploiting the characterization, we develop a differentiable path-following method to compute a sequential equilibrium.

Cite

@article{arxiv.2503.19493,
  title  = {A Characterization of Sequential Equilibrium through $\varepsilon$-Perfect $\gamma$-Sequential Equilibrium with Local Sequential Rationality and Its Computation},
  author = {Yiyin Cao and Chuangyin Dang},
  journal= {arXiv preprint arXiv:2503.19493},
  year   = {2025}
}
R2 v1 2026-06-28T22:33:35.274Z