We formally assume that players in a game consider Nash Equilibrium (NE) the behavioral norm. In finite games of perfect information this leads to a refinement of NE: Faithful Nash Equilibrium (FNE). FNE is outcome equivalent to NE of the "trimmed" game, obtained by restricting the original tree to its NE paths. Thus, it always exists but it need not be unique. Iterating the norm ensures uniqueness of outcome. FNE may violate backward induction when subgame perfection requires play according to the SPE following a deviation from it. We thus provide an alternative view of tenable threats in equilibrium analysis.
|Name||Edinburgh School of Economics Discussion Paper Series|