Econometrica: May, 1995, Volume 63, Issue 3
The Existence of Subgame-Perfect Equilibrium in Continuous Games with Almost Perfect Information: A Case for Public Randomization
Arthur Robson, Christopher Harris, Philip Reny
The starting point of this paper is a simple, regular dynamic game in which subgame-perfect equilibrium fails to exist. Examination of this example shows that existence would be restored if players were allowed to observe the output of a public-randomization device. The main result of the paper shows that the introduction of public randomization yields existence not only in the example, but also in a large class of dynamic games. It is also argued that the introduction of public randomization is the minimal robust extension of subgame-perfect equilibrium in this class of games.