Markov perfect equilibrium I. Observable actions

We define Markov strategy and Markov perfect equilibrium (MPE) for games wi th observable actions. Informally, a Markov strategy depends only on payoff -relevant past events. More precisely, it is measurable with respect to the coarsest partition of histories for which, if all other players use measur able strategies, each player's decision-problem is also measurable. For man y games, this definition is equivalent to a simple affine invariance condit ion. We also show that an MPE is generically robust: if payoffs of a generi c game are perturbed, there exists an almost Markovian equilibrium in the p erturbed game near the initial MPE. (C) 2001 Academic Press.