This video shows how to look for a subgame perfect equilibrium. We start by explaining what subgames are, then look for a Nash equilibrium, and finally look for the subgame equilibrium.
In game theory, a subgame is a subset of any game that includes an initial node (which has to be independent from any information set) and all its successor nodes. It’s quite easy to understand how subgames work using the extensive form when describing the game.
A subgame-perfect equilibrium is an equilibrium not only overall, but also for each subgame, while Nash equilibria can be calculated for each subgame. In order to find the subgame-perfect equilibrium, we must do a backwards induction, starting at the last move of the game, then proceed to the second to last move, and so on.
Learn more by reading the dictionary entry.