Trembling hand perfect equilibrium

First define a perturbed game. A perturbed game is a copy of a base game, with the restriction that only totally mixed strategies are allowed to be played. A totally mixed strategy is a mixed strategy where every strategy (both pure and mixed) is played with non-zero probability. This is the "trembling hands" of the players; they sometimes play a different strategy, other than the one they intended to play. Then define a strategy set S (in a base game) as being trembling hand perfect if there is a sequence of perturbed games that converge to the base game in which there is a series of Nash equilibria that converge to S.

Note: All completely mixed Nash equilibria are perfect.

Note 2: The mixed strategy extension of any finite normal-form game has at least one perfect equilibrium.[2]

The game represented in the following normal form matrix has two pure strategy Nash equilibria, namely ${\displaystyle \langle {\text{Up}},{\text{Left}}\rangle }$ and ${\displaystyle \langle {\text{Down}},{\text{Right}}\rangle }$. However, only ${\displaystyle \langle {\text{U}},{\text{L}}\rangle }$ is trembling-hand perfect.

Assume player 1 (the row player) is playing a mixed strategy ${\displaystyle (1-\varepsilon ,\varepsilon )}$, for ${\displaystyle 0<\varepsilon <1}$.

Player 2's expected payoff from playing L is:

${\displaystyle 1(1-\varepsilon )+2\varepsilon =1+\varepsilon }$

Player 2's expected payoff from playing the strategy R is:

${\displaystyle 0(1-\varepsilon )+2\varepsilon =2\varepsilon }$

For small values of ${\displaystyle \varepsilon }$, player 2 maximizes his expected payoff by placing a minimal weight on R and maximal weight on L. By symmetry, player 1 should place a minimal weight on D if player 2 is playing the mixed strategy ${\displaystyle (1-\varepsilon ,\varepsilon )}$. Hence ${\displaystyle \langle {\text{U}},{\text{L}}\rangle }$ is trembling-hand perfect.

However, similar analysis fails for the strategy profile ${\displaystyle \langle {\text{D}},{\text{R}}\rangle }$.

Assume player 2 is playing a mixed strategy ${\displaystyle (\varepsilon ,1-\varepsilon )}$. Player 1's expected payoff from playing U is:

${\displaystyle 1\varepsilon +2(1-\varepsilon )=2-\varepsilon }$

Player 1's expected payoff from playing D is:

${\displaystyle 0(\varepsilon )+2(1-\varepsilon )=2-2\varepsilon }$

For all positive values of ${\displaystyle \varepsilon }$, player 1 maximizes his expected payoff by placing a minimal weight on D and maximal weight on U. Hence ${\displaystyle \langle {\text{D}},{\text{R}}\rangle }$ is not trembling-hand perfect because player 2 (and, by symmetry, player 1) maximizes his expected payoff by deviating most often to L if there is a small chance of error in the behavior of player 1.

For 2x2 games, the set of trembling-hand perfect equilibria coincides with the set of equilibria consisting of two undominated strategies. In the example above, we see that the equilibrium <Down,Right> is imperfect, as Left (weakly) dominates Right for Player 2 and Up (weakly) dominates Down for Player 1.[3]

There are two possible ways of extending the definition of trembling hand perfection to extensive form games.

• One may interpret the extensive form as being merely a concise description of a normal form game and apply the concepts described above to this normal form game. In the resulting perturbed games, every strategy of the extensive-form game must be played with non-zero probability. This leads to the notion of a normal-form trembling hand perfect equilibrium.
• Alternatively, one may recall that trembles are to be interpreted as modelling mistakes made by the players with some negligible probability when the game is played. Such a mistake would most likely consist of a player making another move than the one intended at some point during play. It would hardly consist of the player choosing another strategy than intended, i.e. a wrong plan for playing the entire game. To capture this, one may define the perturbed game by requiring that every move at every information set is taken with non-zero probability. Limits of equilibria of such perturbed games as the tremble probabilities goes to zero are called extensive-form trembling hand perfect equilibria.

The notions of normal-form and extensive-form trembling hand perfect equilibria are incomparable, i.e., an equilibrium of an extensive-form game may be normal-form trembling hand perfect but not extensive-form trembling hand perfect and vice versa. As an extreme example of this, Jean-François Mertens has given an example of a two-player extensive form game where no extensive-form trembling hand perfect equilibrium is admissible, i.e., the sets of extensive-form and normal-form trembling hand perfect equilibria for this game are disjoint.

An extensive-form trembling hand perfect equilibrium is also a sequential equilibrium. A normal-form trembling hand perfect equilibrium of an extensive form game may be sequential but is not necessarily so. In fact, a normal-form trembling hand perfect equilibrium does not even have to be subgame perfect.

Myerson (1978)[4] pointed out that perfection is sensitive to the addition of a strictly dominated strategy, and instead proposed another refinement, known as proper equilibrium.

• Osborne, Martin J.; Rubinstein, Ariel (1994). A Course in Game Theory. MIT Press. pp. 246–254. ISBN 9780262650403.