JOURNAL OF ECONOMIC THEORY 43, 134-156 (1987)

Local Perfection *
LEO K. SIMON

Department of Economics, University of California,

Berkeley, California 94720

Received December 5, 1985; revised August 3, 1986

We investigate solution concepts for normal-form games with large strategy

spaces. Trembling hand perfection (THP) is extended to games with compact
metric strategy sets. A Nash equilibrium is THP if it is the limit of.equilibria in
which agents face vanishingly small uncertainty. We refine THP by imposing some
structure on the kind of uncertainty that agents face: a THP equilibrium is locally
perfect if the uncertainty is predominantly local in nature, i.e., if agents
probability assessments assign, in the limit, an overwhelmingly lage proportion of
the total probability mass to events in the vicinity of the truth. Journal of
Economic Literature Classification Numbers: 021, 022, 611. b 1987 Academic Press, Inc.

This paper investigates solution concepts for games with large strategy
spaces. Seltens [S] notion of trembling hand perfection (THP) is
extended to games with compact metric strategy sets. Loosely, a Nash
equilibrium is THP if it is the limit of equilibria in which agents face
vanishingly small uncertainty. We introduce a refinement of THP, called
local perfection: some structure is imposed on the kind of uncertainty that
agents face. Informally, a THP equilibrium is locally perfect (LP) if the
uncertainty agents face is predominantly local in nature, i.e., if agents
probability assessments assign, in the limit, an overwhelmingly large
proportion of the total probability mass to events in the vicinity of the
truth.
To fix ideas, let S= (S,, S2) be a pure-strategy Nash equilibrium for some
two-person game. Let Pi denote player ?s payoff function. Suppose that
there exists an alternative strategy for player 1, s;, and a neighborhood,

* I am indebted to Robert Anderson, Andreu Mas-Colell, Roger Myerson, John Nachbar,

Hugo Sonnenschein and Max Stinchcombe for their help at various stages. I am particularly
grateful to an associate editor of JET for extremely helpful suggestions. Many of these are
incorporated into the paper without further acknowledgment. Research was supported by
grants from the National Science Foundation, and from the Institute for Business and
Economic Research, U. C. Berkeley. Figure 1 courtesy of Goldman Graphics.
Myersons criterion, properness, [I] also imposes structure on the kind of uncertainty
faced by agents. The relationship between the two ideas is discussed in Section III.
134
0022-0531/87 $3.00
Copyright 0 1987 by Academic Press, Inc.
All rights of reproduction in any lam reserved.
 LOCAL PERFECTION 135

U,, of S,, such that P,(s;, .) $ Pi@,, .) on U2.2 Also assume that for
some t, far away from S2, P,(S,, t2)> Pi(s;, t2). (Thus, S1 is not weakly
dominated by s;, but, one might say, it is locally weakly dominated.)
Agent # 1 will be indifferent between S1 and s; if he is absolutely certain
that player # 2 will choose precisely S2. He will choose s; over S, if he is
virtually sure that # 2 will choose an action in the vicinity of S;, but
cannot predict his decision with aboslute precision. If, on the other hand,
he is almost sure that if S, is not played, then t, wiZ1be played, then he will
choose S, over s;. For this game, S will be a THP equilibrium but not a LP
equilibrium.
The paper is organized as follows. Section I begins with an example. We
then introduce the formal definitions. Section II contains the formal model.
In Section III we focus on finite games, and compare local perfection to
established solution concepts. Existence results are presented in Section IV.

I. INTR~OUCTION

In this introductory section, we restrict attention to two-person games

with no mixed strategies. We extend Seltens definition of trembling hand
perfection to games with infinite strategy sets and illustrate the relationship
between this concept and our refinement. The reader should be aware that
once there are more than two players, the relationship between local and
trembling hand perfection will not be quite so straightforward.
The game defined below has a continuum of (pure-strategy) Nash
equilibria. All of these are trembling hand perfect, but only one is locally
perfect. The set of strategy profiles is S= S, x S2 = [0,2] x [0, 11, The
payoff function, P: S + R2 is defined below. The strategy s, = 0 is a
dominant strategy for player # 1. Player #2s payoffs are illustrated in
Fig. 1. For s=(s,,s,)ES:

P,(s) = 2 - s1
(Example 1)
~2CW~/s2)~ - bI/s213 - 2(s1/s2)1 if s2 >+~r
if s,<$s,

The set of pure strategy equilibria for this game is: { (0, s2): s2 E [0, I]}.
This plethora of equilibria is a consequence of the perfect information
assumption underlying the Nash solution concept: player #2 has no basis
for preferring any particular one of his strategies, only because he is
presumed to be absolutely certain that player # 1 will select precisely 0.

* For two functions f and g on A, we will write f $ g if f(x) 2 g(x), for all XE A, with
strict inequality holding for some x.
136 LEO K. SIMON

FIGURE 1

This leads to the question: What if players perceptions are less finely
honed than the Nash hypothesis presumes? To answer this question, we
develop a model of slightly fuzzy or blurry perceptions and explore the
consequences of viewing perfect information games as the limits of games
played by agents whose perceptions are not absolutely precise. Viewed
from this perspective, the game described above has only one valid
equilibrium, the profile (0,O).
What strategy will player #2 choose if he is almost but not absolutely
certain that # 1 will choose s1 = O? Unless some restrictions are imposed
on the structure of admissible beliefs, virtually any answer is possible. For
example, s2 z 1 will be a best response for player #2 if, conditional on the
event s, # 0, he assigns a sufficiently high probability to the event s, z 3/2.
Such beliefs might seem implausible on a priori grounds; they are certainly
antithetical to the spirit of fuzzy perceptions. The example suggests a
natural restriction on beliefs: agents must assign relatively high probability
to events in the vicinity of the truth.
Given any 6 > 0, if player # 2 is not completely certain that player # 1
will play s1 = 0, but is almost completely certain he will choose some
strategy in [0, S], he will reject any s2 > 6, since such a strategy would
yield a negative expected payoff (see Fig. 1). Without a further specification
of #2s precise beliefs, however, we cannot pin down his best action more
precisely than this. Now consider a sequence of probability assessments for
player #2, with the property that uncertainty becomes increasingly more
heavily concentrated in the vicinity of 0. Specifically, suppose that:

V6 > 0, for any open set 0, c [0,6)

the probability assigned by #2 to the event s1 6 [0,6) (*)
tends to zero relative to the probability that s1 E 0 r.
 LOCAL PERFECTION 137

Note that we do not require that the set 0, contain 0. In Example 1, the
player #2s sequence of beliefs satisfies condition (*), and if s; is a
sequence of best responses to these beliefs, then (3;) must necessarily
converge to zero. To see this, observe that for any 6 > 0, inequality (1.1)
below must eventually be satisfied:

Prob(s, +! [0, 5 6)) 6

Prob(s, E (6, 3 6)) < 6 (1.1)

We will show that if this inequality is satisfied, then 0 must be a better

response than any s2 E (5 6, 11. Fix S, > 5 6. We have:

<o if s,<56
PAS, >S,) = i < -6 if s, E (6, 3 6).
<6 if s, E [5 6, 21

Therefore, once inequality (1.1) is satisfied, # 2s expected payoff from

playing S2 is negative, while his expected payoff from playing s2 = 0 is zero.
Since 6 was chosen arbitrarily, this argument establishes that if s2 is the
limit of best responses to a sequence of probability assessments satisfying
condition (*), then s2 = 0.
To formalize the above ideas, we propose a new solution concept for
normal-form games: local perfection. LP is a refinement of trembling-hand
perfection, in the spirit of Myersons properness [7]. Seltens starting point
was that many implausible equilibria could be eliminated by the introduc-
tion of vanishingly small uncertainty of an essentially arbitrary nature.
Myerson refined Seltens construct by imposing restrictions on the way
uncertainty could be admitted into the model. Local perfection is based on
a different kind of ordering of uncertainty: a THP equilibrium is said to be
locally perfect if this uncertainty is, in a sense to be made precise,
predominantly local.
To formalize uncertainty, we assume that each agent has a conjecture
about the actions the other will select.3 Conjectures are represented as
probability measures on the other agents strategy set, i.e., on [0, 11. A
sequence of conjectures by player # 1 represents vanishingly small uncer-
tainty about sa E S2 if the sequence converges weakly to the Dirac measure
that assigns unit mass to the singleton set (szj. (We will denote this

3 We could also have motivated the uncertainty with a story about trembles, a la Selten.
See Section III.
138 LEO K. SIMON

measure by S,,.) A pure-strategy Nash equilibrium, S= (Sr, S,), will be

called trembling hand perfect (THP) if for each i, there exists a sequence of
conjectures, (pi,), ~9 +n 6,, and a sequence of strategies, (s;), S; -+, Si,
such that, for each n if i conditions on the conjecture ~7~ then s; maximizes
his expected payoff function.
The set of THP equilibria may be very large. In example 1 above, any
profile (0, sZ), s2 E [0, l] can be supported as a THP equilibrium. To
illustrate this, choose 6 E (0, 11. We will construct conjectures that support
the profile s(6) = (0,2 6). We need be concerned only with player #2 since,
clearly, s1 = 0 will be a best response for player # 1, regardless of his con-
jecture. Let (/.?) be the sequence of conjectures on [0,2] defined by, for
all n: p2.({O})=(l-n-1-n-2); p*({36))=n- and the remaining
mass, (np2), is distributed uniformly over the remainder of [0,2]. Clearly,
(p.) converges weakly to 6,. Moreover, P,(3 6, .) attains a strict global
maximum at s2 = 2 6.4 Therefore, if for each n, S; maximizes
s co,ll P2(t,, .I dp2?tl), then s; +n 2 6. This establishes that s(6) is a THP
equilibrium.
The above construction illustrates that the conjectures needed to support
a particular THP equilibria may have to be very artificial. For example, to
support any profile other than (0, 0), we had to assign a significant lump
of probability mass to some event that was isoZatedfrom the truth, i.e.,
from the event s1 = 0. This motivates the following refinement: a strategy
profile will be called locally perfect if it can be supported by conjectures
representing predominantly local uncertainty. We mean by this that agents
conjectures must, in the limit, assign an overwhelmingly high proportion of
the total probability mass to events in the vicinity of the truth. In the
following section, we formalize this restriction by generalizing condition (*)
above. From our earlier argument, we have established that Example 1 has
a unique LP equilibrium, the profile (0,O).
In the following section, we establish that condition (*) can be satisfied
for a large and reasonable class of conjecture sequences. The simplest
example is a sequence of truncated-normally distributed conjectures, cen-
tered about zero and with variance converging to zero. For example, let
player # 2s nth conjecture, p2,n, be the truncated normal distribution on
[0, 23, with mean 0 and variance l/n. Let f ; denote the density of p2+. Fix
6 > 0. Inequality ( 1.1) is satisfied if we pick n sufficiently large that
f ;(5 8)/f ;(3 6) < a2/6. In this case, we have
Prob(s, 4 [O, 5 6)) < a2(2 - 5 6) 6
Prob(s, E (6, 3 6)) 6(26) (6

4 (s/as,)P,(3S,.)=(s,/s,)2 [2(s,/sz)-31 and (8'/(as,)')P,(36, 26)<0.

 LOCAL PERFECTION 139

II. LOCAL PERFECTION

We begin by defining local perfection for games in which mixed

strategies are inadmissible. We then extend the concept to general games.
The special and general concepts are treated separately for two reasons.
First, the former is more intuitive, and motivates the general definition.
Second, the two notions are conceptually distinct: there are degenerate (i.e.,
singleton support) mixed-strategy LP equilibria that are not locally perfect
in the pure-strategy sense. (This is less surprising than at first sight: as we
shall see, the meaning of predominantly local uncertainty is quite dif-
ferent, depending on whether or not mixed strategies are admitted. Since in
many economic contexts, mixed strategies have no sensible interpretation,
it is useful to have a separate concept for pure strategy games.)

Pure Strategies

Let I denote a finite set of players, with generic element i. Player is pure
strategies will be represented by S;, with generic element s;. We assume
that Si is a compact metric space. Let d;Fbe a metric for S;. Let S = ni,, Sj
and let dS = maxit I d,S. The set S will frequently be written as Si x Sj,
where ,S_; = nj,i S,. (We will use the notation ( i, -) frequently below,
without further comment.) An element s = (si, spi) E S will be called a pure
strategy profile.
A payoff function P: S + R#, assigns to each strategy profile a vector of
payoffs, one for each agent. We assume P is continuous w.r.t. dS. A game is
a pair (S, P). A pure strategy Nash equilibrium for (S, P) is a profile s E S
such that for all iEI and all s:cSi, P,(s)> Pi(s,!, sei).
Let M(S,) denote the set of Bore1 probability measures on playerjs pure
strategies. Let M(S,) denote the Bore1 product probability measures on
S-i.5 A point pin M(Si) will be called a conjecture by i. The conjecture pLi
represents is beliefs about the strategies other agents will choose. That is,
for the Bore1 subset Tei of S,, $(TAi) is the probability assigned by i to
the event that other agents will choose pure strategies in Tei. Let dp
denote the Prohorov metric on M(S,) and let dP, = maxIf, d, denote the
product Prohorov metric on M(S-i).6 A conjecture profile, p = (P~)~~,, is a
list of conjectures, one for each agent, i.e., an element of nis, M(S,). We

5 A probability measure m defined on the Bore1 rectangles of S-, is a product measure

if there exists a family of measures, (m,),,,, where m, EM(S,), such that for every Bore1
rectangle T-(ES_,, m(T-,)=n,,, M,( r,). See Hildenbrand [S, p. 41, 471 for precise
definitions.
6 The Prohorov metric is a metric for the topology of weak convergence. See Hildenbrand
IS, P. 491.
140 LEO K. SIMON

will say that a sequence of conjectures by i, (pi*), is rich if every open

subset of Si is eventually assigned positive measure by (pi,), i.e., if7

for any open set 0 -i c Si, 317s.t. Vn > ti, #(Obi) > 0. (2.1)

For sj ES,, let 6, E M(S,) denote the Dirac measure at sj, that is, the
measure defined by: ds,( {s,}) = 1. Define 6,-, and 6, analogously. The con-
jecture pi = 6,-, represents certainty by i that other players will choose SLY.
A sequence of (conjecture profile)-(pure strategy profile) pairs, (p, s),
will be said to validate a strategy profile S if for each i: (a) for each n, s: is
a best reply against ~2; (b) the sequence (#) converges weakly to 6,-,;
(c) the sequence (3;) converges to Si. Formally, a sequence (pLn,s) in
JJis,M(S-,)x S validates SES if for all i,

Qs; E Si, (Pi(s:, tui)-Pi@;, t-i))d$,n(tpi)>O; (2.2a)

ss-t

dPi(pi, Fe,) 7 0; (2.2b)

d;(s;, Si) 7 0. (2.2c)

We will be concerned with conjectures that assign, in the limit, an

overwhelmingly large proportion of the total probability mass to events in
the vicinity of the event (S}. To formalize this idea, we introduce the idea
of an order restriction on Smi. We will say that a sequence of conjectures,
(pi,) is S-ordered about S_; if there exists a sequence of open subsets of
Si, ( Pi)k, 1, satisfying

(2.3a)

Vk, for any open set 0-i C uki, :(,~~~-~i) 7 O. (2.3b)

I 1
See Fig. 2.
A profile, SE S is a pure strategy locally perfect (LP) equilibrium if there
exists some sequence ($, sn) in ni,, M(S-,) x S such that
Vi E I, (pi-n) is rich; (2.4a)
(p, 8) validates S; (1.4b)
Vi, ($3) is S-ordered about dei. (2.4)

It would be more conventional to require that for all n, supp(~~)= S-,. Our weaker
requirement is easier to work with when S-, is an infinite dimensional space.
 LOCAL PERFECTION 141

0-i

FIGURE 2

S-Ordering with Pure Strategies

Condition (2.3) is a strictly stronger requirement than weak convergence.

For example, consider again Example 1 above, and the sequence of conjec-
tures, (p2*), on [0,2], defined in Section I: g*( (0)) = (1 -n ~ -n-);
$({3fs})=n+ with the remaining mass, (K*), being distributed
uniformly over the remainder of [O, 21. This sequence converges weakly to
6, but is not S-ordered about Si, since ,B*(S, N (0, 3 S))/p**((O, 3 6))
+n co. The general point is that weak convergence to b0 does not guarantee
that the probability assigned to strategies far away from zero will become
small relative 20 the probability assigned to any set close to, but not
containing the point zero itself.
What conditions do guarantee that a sequence, (,uiv), will be S-ordered
about Sei? It is not sufficient, obviously, that the supports of the Z??
collapse to (Sei>. Indeed, if condition (2.3) is satisfied, then the supports of
the Z.Ps cannot converge to (SW;>. (If O-i c UL, for some k, then
,P(OPi) must eventually be positive.) However, condition (2.3) will be
satisfied if (@) is a convex combination of two measures, (pi) and (,uy),
where the supports of the ,Qs collapse to {s-~> and the pys are dis-
tributed normally, with means converging to sBi and variances converging
to zero.
For example, let Sj = [0, 11, for all i. For i E Z, let Xi be an arbitrary,
positive definite ( # Z - 1 x #I- 1 )-dimensional matrix. Define the function
fi,n: SPi xSei + R, by:f*(., sei): Ki + R, is the density of the trun-
142 LEO K.SIMON

cated normal distribution with mean s-i and variance-covariance matrix

n-Cwi, i.e.,

(2.5)
(Here and elsewhere, we denote Lebesgue measure on R by I.) Now fix
SEi E Si and let sTi be a sequence in Sei such that sYi +,, SVi. For n E N,
let ~Lij denote the distribution of f,( ., sTi), (that is, for any Bore1 set
TeicSi, ~~(T_j)=~,_,~(r_,,sj)d~#~(r_i)). Alsopickasequence
(pi) in M(S,) such that supp(&)-+, ~3~~. Finally, let (~1) be an
arbitrary sequence in (0, l] and set $.n = cP~Y + (1 - a) pp. We have:

PROFQSITION la. The sequence(ps) is S-ordered about SKi.

Proof of Proposition Ia. For kE N, let vi= {Spi ESpi:
(s-~-s-~)GI:(s-, -S-i)< l/k}. N ow fix k and an open set 0-i C Uki
Also pick 6>0 such that (s_i--S_i)Cl,(s_i--si)<l/k-26, for all
s _ i E 0 _ i. Finally pick fi sufficiently large that for all n > fi &?( Uki) = 1
and (s-~ -s:,) ,Z:;(S-~ -Pi) > l/k - 6, for all sei E Si - Uki. For
n>ii. we have

/.Lys-i - Ul;.) ctp;(s-i - l/y)+ (1 -cc) Pf(SMi N us:.,

/P(Opi) = a/Jy(O-i) + (1 -Cln) /Jy(O-i)
p;(S_, - uy,
d
/l:(O-j)
= jSm,-de,Y(r-i, sLi)dA#I-(r-i)
So-, p(rei, syi) dAX-(r-J

exp{ -(n/2)(1/k-@)
exp{-(n/2)(l/k-28)j00.

Mixed Strategies
A mixed strategy for i is a Bore1 probability measure on Si, i.e., an
element of M(S,). Let vi denote the generic mixed strategy for i. A mixed
strategy profile is a Bore1 product probability measure, i.e., a point in
M(S). A Nash equilibrium for (S, P) is a profile v E M(S) such that for all
ieZ and all s: E Si, Is P,(t) du>J,_, P,(s:, tei) du_i.
As before, a conjecture by i is a point in M(S,). A sequence (pL, vn), will
be said to validate a mixed-strategy profile 17if for each i: (a) for each n, v;
is a best reply against P*~; (b) (pi* converges weakly to VPi; (c) (~7) con-
 LOCAL PERFECTION 143

verges weakly to Vi. Formally, a sequence (p, u) in ni, I M(S-,) x M(S)

validates 17E M(S) if for all i,

VS:ES~,J [I Pi(t;, tPi)dul(ti)-Pi(s:, t-;)I dp+(tLi)>O; (2.2a)

s-t s

dPi(pi*n, v-;) n. o; (2.2b)

df(u;, V;) n 0; (2.2c)

We now extend our notion of S-ordering to incorporate mixed strategies. It

turns out that the general notion is necessarily more intricate than the
special case. In the pure strategy case, our S-ordering concept was defined
relative to a point in pure-strategy space. When we generalize this notion to
mixed strategies, we need to define S-ordering about a conuergent sequence
of mixed strategies. The following argument indicates why this change is
necessary. Fix a Nash equilibrium, 6, and a convergent sequence of
strategy-conjecture profile pairs, (un, pn), such that the us are the best
replies to the ~s. Now, our intuitive notion is that V will be locally perfect
if the ~5 represent predominantly local uncertainty about the us, that is,
if a relatively high proportion of the residual probability mass is assigned
to strategies close the supports of the 0s. However, weak convergence of
(0) to V does not guarantee that the supports of the SS converge to the
support of U. Therefore, the ,Ps may assign lumps of probability mass to
strategies isolated from the support of the limit profile. For example, let
I= (1,2) and S, = [0, 11. For each n, define v; and ,u~* by

n-l
u;=-6,+~c3,;
n

for any Bore1

T,c LP2v-l) =.c,,[G f2.(rl,0)+~f2.n(rl, l)]di.(r,),

where f*,( ., sl) is defined by (2.5) above. Clearly, the sequence (~~3) is
not S-ordered about zero. The conjectures do, however, represent
predominantly local uncertainty about the u;s, and so should be
admissible, according to our intuitive criterion. It is inappropriate,
therefore, to define S-ordering in terms of the limit profile alone: the
sequence of validating best responses must enter explicitly into the

6421431.IO
144 LEO K. SIMON

definition of our concept. Accordingly, our mixed-strategy analog of (2.3)

requires that any open set of pure-strategies close to the support of lim, vTi
be assigned high probability relative to the probability assigned to
strategies isolated from the supports of the v~s.
Formally, we will say that a convergent sequence of conjectures, (#) is
S-ordered about (vTi) if there exists a sequence of pairs of open sets,
(U?$ U?:)p= 1, satisfying

(2.3a)

(S-i N U?:) _) 0
tlk, for any open set 0 -; c U,k.0 (2.3b)
gyo-j) .

For example, consider the sequence, (v;, ps), defined above (expression
(2.6)). Since Ls(supp(vq)) = (0, 1 }, the conjecture sequence (~~3) satisfies
condition (2.3): take Ukk = [0, l/k) and U$ = [0, l/k) u ((k - 1)/k, 11.
More generally, we establish below (Proposition Ib) that a sequence of v:,-
weighted combinations of truncated normals will be S-ordered about (vyi).
A mixed strategy profile, 17,is a locally perfect (LP) equilibrium if there
exists a sequence (p, u) satisfying:

Vi, (pi,) is rich; (2.4a)

($, u) validates V; (2.4b)
Vi, ($9) is S-ordered about (UT,). (2.4~)

Since condition (2.3) is clearly weaker than (2.3), there exist singleton
support LP equilibria which are not pure-strategy LP equilibria. For exam-
ple, consider the two-person game, (S, P), where S, = [0, 11, S, = (f, r}
and P is defined by

P,(s,,1)=P,(s,,r)=s:-s,.
(Example 2)
s1-s: if s2=1
P,(S,? s2)= i $3, if s2 = r.

8 Ls denotes the topological limes superior (see Hildenbrand [S, p. 151;

SC, ~Ls(supp(v-,)) if there exists a subsequence (v<) and for every q an element
t<,osupp(o<,) such that t!,-+s_,. For example, if ~~=((n-l)/n)6,+(l/n)6,, then
Ls(supp(v_,))= (0, 1). The reader is cautioned not to confuse Ls(supp(v,)) with
L.r(supp(p.)): since the ~s are rich, Ls(supp(#,)) = S-;! Note that condition (2.3b) does
not imply weak convergence of the @s to lim, vyi (cf. the corresponding condition (2.3b),
which did imply that @@s converged weakly to S-,.)
 LOCAL PERFECTION 145

The pure-strategy Nash equilibrium (0, r) is not a pure-strategy LP

equilibrium. Against any sequence of conjectures that is S-ordered about 0,
player #2 clearly does better by playing left. On the other hand, 6,,, is a
locally perfect equilibrium in the mixed-strategy sense: 6,,[ is validated by
(u, p), where u; and ,u(; are defined above (expression (2.6)). The reason
for the difference is, simply that if mixed strategies are admitted, there are
more convergent sequences of strategies, and, consequently, more conjec-
ture sequences representing local uncertainty about such strategies.

Stronger Variants
An LP equilibrium may be validated by idiosyncratic beliefs. That is, two
agents conjectures about a third agents actions may differ. In some
contexts, it may be appropriate to impose the stronger requirement that
conjectures are consistent, i.e., that any two agents must have the same
beliefs about what any third agent is likely to do. (Discussion of the
consistency issue is deferred until Section III.) Accordingly, we define a
sequence of conjecture profiles, ($) = (P,~);~ ,, to be consistent if

Vn, 3~ E M(S) s.t. Vi E Z, pi,n = x? i (2.7)

We will say that a pure strategy LP equilibrium, J;, is a consistent locally

perfect (CM) equilibrium if it can be validated by some sequence of pairs,
($, sn), such that (flu) is consistent. (The mixed strategy notion is defined
analogously.) Note that in a two player game, condition (2.7) is satisfied
trivially.
Our second variant is introduced so that LP can be applied to games
with finite strategy sets. Since finite sets have a trivial topological structure,
local perfection has no bite in finite games: a Nash equilibrium for a finite
game is CLP iff it is trembling hand perfect. On the other hand, local per-
fection without consistency is strictly weaker than THP for finite games: a
Nash equilibrium for a finite game is LP iff no agents strategy is weakly
dominated by some other mixed strategy.
In many games of economic interest, however, there is a natural metric
structure, and it may be quite reasonable to require that uncertainty be
locally concentrated. For example, strategies may be a finite subset of some
natural continuum: prices may be denominated in dollars and cents, time
units in days, etc, output in integers, etc. In such games, we can eliminate
certain implausible equilibria if we replace our original S-ordering
condition with a more stringent, metric condition.
To capture the intuition of local perfection in finite games, we substitute

9 This fact can be proved by manipulating Rockafellar [ll, Theorem 22.1. p. 1981,
146 LEO K. SIMON

a net of balls for the sequence of neighborhoods in condition (2.3). We say

that a sequence of conjectures, (pi,), is metrically S-ordered about Sei if

ViEI, VEER, k>O and any open set O-icB(S-i, l/k), (2.3b)
/li'"(Sp; - B(Ci, ilk)) _) 0
/i.i'n(O-i) n '

The mixed strategy analog of metric S-ordering is defined in the obvious

way: a convergent sequence of conjectures, (pi,) is metrically S-ordered
about (I?~) if

Vi E Z, Vk E R, and any open set 0 pi c BH(supp(lim o~), l/k), (2.3b)

n
~Lin(S-iNBH(LS(SUpp(uj)), ilk))- o
/P(O-j) n .

(BH( Tpi, 6) is the Hausdorff ball about the set T_ ;, i.e., BH( T-i, 6) =
(SLi E sei 3 tci E spi s.t. d:,(t-,, sxi) < S}.,
At first sight, metric ordering appears much more stringent, and less
defensible, than its topological counterpart. On the other hand, if the
variance-covariance matrix Cei described earlier is the the identity matrix,
the ~~3sin Proposition Ia will be metrically S-ordered about SKi. We will
say that an pure strategy LP equilibrium, S, is a metric locally perfect
(MLP) equilibrium if it can be validated by a sequence, (p, s), such that
for each i, pLnis metrically S-ordered about S- ;. (The mixed strategy notion
is defined analogously.)
The following game illustrates the difference between LP and MLP in
finite games. Consider the following modification of Example 2. S; is a
finite subset of [0, l] containing 0 and 1. S; = (I, r}, Pi = P2,s and Pi is
defined by, for s E S:

P;(s,,I)=P;(s,,r)=(l-&)S:--SI, (Example 2)

where EE (0, 1). The Nash equilibria for the game (S, P) are: player # 1
plays zero, and #2 plays any mixed strategy. The unique metric locally
perfect equilibrium is a,,, (since once p2* assigns sufficient probability mass
to the interval (0, t), player #2 must choose I). On the other hand, all of
the Nash equilibria for this game are both trembling hand perfect and
locally perfect in our weaker sense. For example, the pure strategy
equilibrium (0, r) can be validated if player #2s conjecture are given by:
~2~n({0})=1-~~1-~-2,~2~n((1})=~~1,withtheremainingmass,(n~2),
being distributed uniformly over (0, 1). For any finite subset of [O, l],
(~~3) satisfies the S-ordering condition (2.3b): set Ut = {0), for all k.
 LOCAL PERFECTION 147

Large Strateg-v Spaces

Local perfection has proved to be a powerful concept when strategy sets
are very large (e.g., function spaces). For example, in a game described in
Simon 193, strategies are indifference surfaces. The set of THP equilibria
for this game is extremely large, but the locally perfect equilibria are
all outcome equivalent. Indeed, in the the locally perfect equilibria,
agents announced indifference surfaces coincide (locally) with their true
preferences.
Once strategy sets are infinite-dimensional, however, the construction of
S-ordered conjectures is somewhat delicate. A natural way to proceed is to
approximate the S,s with finite-dimensional sets, and define a sequence of
normal distributions on the corresponding Euclidean spaces, This section
illustrates such a construction. Proposition Ib below is an infinite-dimen-
sional, mixed-strategy version of Proposition la. It plays a key role in our
existence proof in Section IV.
Let S, be a convex, compact subset of metrizable topological vector
space, and let d, be a metric for S,. Let S; be an nondecreasing (by
inclusion) sequence of convex, finite dimensional subsets of S, such that
cl(lJ, S;) = S,. Let p,(n) = dim(Sy). Without loss of generality, assume
that p,(n) <n.
For each n, choose a homeomorphism g;: SY,+ R+(n). Define the
function gr: a;(S;) x S, + R + by, for (xi3 s,) E a;(y) x S,,

exp( -(n/2) d,S((a;)-(x,), s,)}

gl(x,, s;) =
s+5;, exp{ -(n/2) dT((cr;)-(y,), s,)} dlQ((y,) (25)

With the obvious caveat when pj(lz) =O, g; is a well-defined density on

c;(S;). Note that the variances of the g;s are shrinking at a faster rate than
those of thef,s defined by (2.5). Define gin: n[+; o;!(S;) x Si + R, by

gq.xL;, t mi) = n g;(xj, f,). (2.8)

/#i
Let (0 i) be a convergent sequence in M( S i). For n E N, define pi. on S,
by, for any Bore1 set Tmj cKi,

I.(T~,)=js~~jbl.rr,~~ -, ) gi.(y-,, tci) dP(.v~,) du_;(tp;). (2.9)

Clearly, p i.n is a well-defined probability measure on S,. We have:

PROPOSITION Ib. The sequence (pi*) is rich and metrically S-ordered

about (VF i).

lo Given a vector space, V, dim(V) denotes the dimension of V.

148 LEO K. SIMON

Proof of Proposition Ib. Pick an arbitrary open set Oei E Sei. We first
check that for n sufficiently large, ~~(0~~) > 0. Pick Ci E O-j. Since
Un Si is dense in Spi, there exists a sequence (t: J such that for all n,
t, E Sri and Pi -+ iCi. Pick ii sufficiently large and E > 0 such that for any
n > ii, B(P, E) c O-,. Since the density of g, is strictly positive on
cYi(s ;), we have

This establishes that (p) is rich.

We now check condition (2.3b). Let Vpi = lim, v i For k E R, k > 0, let
Ul, = B( supp( V- i), l/k) and U?: = B( Ls( supp( VT i)), l/k). Pick an open
set 0 _; c 175: and t-, E 0 --i. Now pick Ci E supp(Ei) and 6 > 0 suf-
ficiently small that dSi(f_,, t/L;)< l/k-4 6 and B(tL,, 6)cO-,. Next,
choose E> 0 sufficiently small that

2F< K,(B(i-,, 6)) <liminf u:,(B(t-,, 6)).

n

Now pick C sufficiently large that for all n > t? (i) v:,(B(iCi, 6)) > E and (ii)
inf{dsi(s-;, t-,): (s-,, tLi)E(Spi- CT?:) x supp(v:,)} l/k - 6. For n > ti,
we have

nz p()(&(s;- uy))
> P~(ai(B(i_;, 6) n s,))

The first weak inequality uses the fact that for (rei, t pi) E
B(tl,,6)~B(i-~,6), dTi(rdi,tpi)<l/k-26.
Since pi(n) <n, for all j, we have: AP-(B(i_i, 6) n Fe,)) 2 (d/n).
Therefore,

This proves that the sequence (cl) is metrically S-ordered about (v~). 1

For a = ~(0, 1) we have: log(na) = n((log n)/n + log a). But (log n)/n -t 0, and log G( < 0,
so that for n suffkiently large, ((log n)/n + log 61) -C 0. Therefore, n((log n)/n + log c() --+ - co,
i.e., @(~a) -+n 0.
 LOCAL PERFECTION 149

III. LOCAL PERFECTION AND RELATED SOLUTION CONCEPTS

III. 1. Trembling- Hand Perfection (Selten [S] )

Selten defined trembling hand perfection only for games with finite
strategy sets. The definition below coincides with Seltens for finite games
and appears to be a natural extension to larger spaces. A strategy profile,
v E M(S), is a trembling hand perfect equilibrium if there exists some
sequence ($I, u) satisfying
Vi, (p) is rich; (2.4a)
($, 3) validates V; (2.4b)
(pL) is consistent. (2.4d)

As we have noted, consistent local perfection and trembling hand perfec-

tion are equivalent for finite games, but LP is strictly weaker. Consistency
is omitted from our basic definition of local perfection for three reasons.
The first is pragmatic: to verify that a given equilibrium is locally perfect, it
is sometimes easier to construct an individual sequence of conjectures for
each agent. Second, LP is a more parsimonious concept than CLP. In the
economic applications that we have considered, we have been able to
exclude all the Nash equilibria we wished to exclude with the weaker
concept. Finally, we argue below that whether or not one imposes consis-
tency affects the heuristic intepretation that one can attach to the solution
concept.
Selten motivates trembling hand perfection as a model of slight
mistakes.12 He imagines sequences of games in which agents occasionally
fail to act rationally. With vanishingly small probabilities, their hands
tremble, causing them to select nonoptimal strategies. These trembles
generate probability distributions on the space of strategy profiles. An
equilibrium is THP if it is a limit of best responses to some such sequence
of distributions. Consistency is a natural restriction to apply in this
context; indeed, it is implied by the minimal presumption that agents
know the model.
We have proposed a rather different heuristic fiction. Rationally is
absolute but perceptions are slightly fuzzy. There is uncertainty in our
model, not because agents are actually trembling but because other agents
do not know precisely which strategies they are playing. Consistency is
surely as unnatural in this context as it is natural in Seltens: why should
two agents purely subjective assessments about what a third agent will do
coincide?
I2 This model is, of course, only a heuristic fiction, invented to justify his formalism. He
observes: there cannot be any mistakes if agents are rational.
150 LEO K. SIMON

111.2. Proper Equilibria (Myerson [ 71)

Many trembling-hand perfect equilibria are quite implausible. Myerson
proposed an order restriction rather similar to ours, as a way of
excluding some of these equilibria. Suppose that S is a finite set. Let (x)
be a sequence of full support measures in M(S). We will say that (x) is
P-ordered if, for all i and all si, s: E Si, x; satisfies:

if 3ii s.t. Vn > ti,

I S-. (PitSit t-i)-P,(s:, tLi))d~Y;(tLi)>O (3.1)

then

A THP strategy profile, 6, is a proper equilibrium if it can be validated by

some ($, v) such that

Vn, ~xEM(S)~.~.V~EZ,I*~=X~ (2.7)

(x:) is P-ordered; (2.4e)

Myersons rationale for imposing this condition is that agents are

presumably much more likely to tremble toward strategies yielding them
higher rather than lower payoffs.
Local perfection and properness are similar in that they involve order
restrictions on the probabilities assigned to different low-probability
events: i.e., under certain conditions, the ratio of these probabilities must
converge to zero. The difference between Myersons construction and ours
is: in Myersons, events are ordered according to the relative magnitudes of
their associated payoffs; in ours, the relevant consideration is the location
of events in the strategy space. (This explains why we chose the terms P-
ordering and S-ordering). To see the difference, consider again Example 2,
defined above. Choose EE (0, 4) and set Sl, = (0, 2s,4s, ,.., 1 }. Note that
&=P;(1,.)>P1(2&,.) = (l-s)s2-2s, so that player #ls second best
strategy is 1. Any tremble by 1 that supports a proper equilibrium must
therefore assign most of the residual probability mass to the event s1 = 1.
Since r is a better response than 1 for player #2 against si = 1, the unique
proper equilibrium is (0, r). On the other hand, as we have seen, the unique
metric locally perfect equilibrium is (0,Z). Whether one prefers the locally
perfect equlibrium to the proper equilibrium depends on how one inter-
prets the trembles and how seriously one takes the metric structure of the
game. The smaller is E, obviously, the more compelling is the argument for
 LOCAL PERFECTION 151

local perfection. On the other hand, one might argue that if the differences
between the payoffs to different strategies is very large, agents might be
very careful to err in the direction of least payoff loss. Obviously, there is
no categorical answer.
111.4. Other Related Concepts
Two other solution concepts are somewhat related to ours: Kreps and
Wilsons [6] sequential equilibrium and Andrew Weisss [lo] strong
robust expectations equilibrium (SREE). Kreps and Wilson also omit
consistency from their definition. However, sequential equilibrium is a
strictly weaker concept than THP and has no bite in normal form games.
Weisss criterion, like ours, has a local flavor, but apart from this, has
little in common with local perfection. SREE is a solution concept for
incomplete information games. It involves an order restriction on the
inferences that can be drawn from zero-probability events: if an off-the-
equilibrium-path action c( is observed, and player-type is equilibrium
action is closer to a than player-type Js, then SREE requires that agents
priors over types are updated in favor of type i. Local perfection, on the
other hand, is a complete information concept: it orders the relative
likelihoods that different off-the-equilibrium-path actions will be chosen by
the same player.

IV. EXISTENCE RESULTS

Our first result is an existence theorem for the strongest of our local per-
fection concepts, consistent metric local perfection. An immediate corollary
is that THP exist under the same conditions. Next, we investigate sufficient
conditions for existence of a pure-strategy LP equilibrium. It is instructive
to observe that the standard conditions for existence of a pure strategy
Nash equilibria-continuity and quasi-concavity in agents own
strategies-do not suffice. This is established by a counter-example. We
then prove that to guarantee existence of a pure-strategy LP equilibrium, it
is sufficient to replace quasi-concavity by concavity. Finally, we observe
that if at a pure-strategy equilibrium, each agents payoff attains a strict
maximum, then the equilibrium is also locally perfect. An immediate
corollary is that if payoffs are strictly quasi-concave in agents own
strategies, then every Nash equilibrium is an LP equilibrium.
Existence of Consistent Metric Perfect Equilibrium

PROPOSITION II. For all i, let Si be a compact, convex and non-empty

subset of a metrizable topological vector space. Assume that P is continuous.
152 LEO K. SIMON

Then a consistent metric LP equilibrium (and hence a THP equilibrium)

exists for the game (S, P).
Proof of Proposition II. The proof will make frequent use of the
definitions and construction introduced earlier. For each j, construct a
sequence of approximating sets, (Sin), and the family of functions g,
defined by (2.8). Define the payoff function, P, by, for each i and s E S,

) Pi(Si,
p:(s) = jgL,(9w ~li(~-i)) gi(y_l, s-i) dAp-8(y-i). (4-I)

Clearly, P is continuous, so that (S, P) satisfies the standard conditions

for existence of a Nash equilibrium (Debreu [ 11, Glicksberg [4], Fan
[3]). Let un be an equilibrium for (S, P). Pick a convergent subsequence
of (u), again indexed by n, and let V be the limit of this sequence. We will
show that V is a CMLP equilibrium for (S, P).
For each n, let $ = (#n),E,r where $,n is defined by (2.9). By
Proposition Ib, (pi,) is rich and metrically S-ordered about (0: ;). Also, ~3~
clearly converges weakly to Ki. Moreover, for all n, i, and si E S,,

IS
s, s-t
P;(t;, tpi) dpis(t~i) dv;(tJ

=ss5s, s-, o,(f-,I

Pi(tit (oYl)- (y-i)) g(Y-i, t-i)

x dilp-z(y-,) dv;(tpi) dv;(tJ

= i p:(t) dv( t)
s,

=I s s-, u,Cs-,,
pi(Sj, (aYi)p (Y-i)) g(Y-iv t-i)

x dAm(y-i) dvIi(t-i)

=s s-s
Pi(~j, t-;)dpisn(t-i).

This establishes that ($, v) validates V and completes the proof. 1

 LOCAL PERFECTION 153

FIGURE 3

A Quasi-concave Game with No Pure Strategy Locally Perfect Equilibrium

Consider the following game. There are two players. The set of strategy
profiles is S = S x S2 = [0, I] x [0,2]. The payoff function, P: S + R2, is
illustrated in Fig. 3. It is defined by, for s = (s,, s2) E S:

I
s2, SE L-0,; (1 +sz)l x [O, 11
4(s, -+1-s,, SE(5(1 +s,), 11x co, 11
PI(s)= s -4s
2 1, SE [o,; (s2 - 111x Cl,21

[ Z-32, sE(t(Jz-l), 11x(1,21

(2-s2)(1+2s, -szh 5-Eco,44 x co, 11

(2 - s2)(1 - 2s, + S?), 3-E ($32, t @I!+ 1)l x co, 11

s E C&S2 - 1 ), 4 $1 x (L23

3E(4-72, 11 x (421
otherwise.
(Example 3)
Note that Pi is quasi-concave in si.
154 LEO K. SIMON

The profile (f, 1) is the unique pure-strategy Nash equilibrium for this
game. There is also a mixed strategy equilibrium, V, where Vi = 4 6, + 4 6,
and V, = 16, + 4 6,. The payoffs are the same in each of the two equilibria:
each players payoff, or expected payoff, is 1.
The profile (4, 1) is clearly not an THP equilibrium and hence cannot be
an LP equilibrium. Player #ls strategy $ is weakly dominated both by
0 and by 1. Indeed, given any conjecture, pl, by player # 1, si will be a
best response to this conjecture only if si E (0, l}. Therefore, there exists
no sequence of conjecture profiles that validates (&, 1). On the other hand,
V is locally perfect. It is validated by the sequence ($, vn), where v = V and
p, and p2. are, respectively, the distributions of [f f.( ., 0) + + f,( ., I)]
and l-4 f2,( ., 0) + t f2.( ., 2)]. (As usual, the fs are defined by (2.5).)
There is a modification of the above game that has a unique pure-
strategy THP equilibrium that is not locally perfect. The modification
involves replacing P, by Pi, defined as follows: let EE (0, 4) be arbi-
trarily small and let P, be continuous, quasi-concave in s,, agree with
P, except on {.YES:S~ E(;-s, f+e)} and satisfy, for all si #$,
P,(s,, 5) < P,(i, f) = $. We can support (4, 1) as a THP equilibrium for the
game (S, (P, , P2)), by choosing conjectures for player # 1 that assign an
overwhelming proportion of the residual probability mass to some
appropriately small neighborhood of s2 = t.
What outcome would we expect to observe if Example 3, or the above
modification of it, were played in practice? In either case, we find it
implausible that agents would arrive at the pure-strategy equilibrium. The
locally perfect mixed-strategy equilibrium yields the same payoffs and is
clearly much more robust. We conclude from this that Local Perfection
may provide a useful criterion by which to eliminate even a unique pure-
strategy equilibrium.

Existence of LP Equilibria when Payoffs are Concave

The fragility of the equilibrium (4, 1) in Example 3 can be traced to the

fact that PI( ., s2) is only quasi-concave, rather than concave. To see why
quasi-concavity causes existence problems, let P, be the concave function
defined by, for all s2 E S,:

When P, is replaced by P, in Example 3, player # ls choice of 4 in

response to sZ = 1 rather than 0 or 1 can be defended. Indeed, it can be
verified that the profile (4, 1) is a Locally Perfect equilibrium for the game
(S, (pi, P2)). The intuition suggested by this example generalizes to the
following result:
 LOCAL PERFECTION 155

PROPOSITION III. Let (S, P) satisfy the conditions of Proposition II

above. Assume in addition that Vi, Pi is concave in s;. Then a pure-strategy
CMLP equilibrium exists for the game (S, P).
Proof of PropositionIIJ. The proof is virtually identical to the proof of
Proposition II. Since Pi is concave in si, the Pps defined by (4.1) are also
concave in si. Therefore, a pure-strategy equilibrium exists for (S, P). Let
s be such an equilibrium and let S be the limit of a subsequence of (s).
The argument used above establishes that S is a pure-strategy CMLP for
(X P). I
We conclude the paper with two elementary results. If each agents
payoffs attain a strict maximum at a Nash equilibrium, then the
equilibrium is LP. An immediate corollary is that in games with strictly
quasi-concave payoff functions, every Nash equilibrium is Locally Perfect
(and hence THP). We now state these results precisely.

PROPOSITION IV. Let S be compact and non-empty, let Pi be continuous,

for all i, and let S be a Nash equilibrium ,for (S, P). If Vi and all
sj E si - (S,), Pj(Si, S.. ;) > Pj(sj, Spi), then S is an LP equilibrium.
Proof of Proposition IV. For all i, n and SK, E Spi, define f:, and P; as
in the preceding proofs. For all n, let s be a maximizer of P:( ., SE,). Pick a
convergent subsequence of (SC), again indexed by n, and let S, be the limit
of this sequence. By Berges theorem (see Debreu [2, p. 191) Sj is a
maximizer of lim, P;( ., S- ;) = Pi( ., SK,). But by assumption, this maximizer
is unique. Therefore, Sj = Si. 1

PROPOSITION V. Let S be compact and non-empty. If Vi, P, is continuous

in s and strictly quasi-concave in si, then every Nash equilibrium for (S, P) is
an LP equilibrium.
Proof of Proposition V. A local maximum of a strictly quasi-concave
function is a strict global maximum. 1

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156 LEO K. SIMON

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