Subgame perfect equilibrium

Subgame perfect equilibrium is an economics term used in game theory to describe an equilibrium such that player's strategies constitute a Nash equilibrium in every subgame of the original game. It may be found by backward induction, an iterative process for solving finite extensive form or sequential games. First, one determines the optimal strategy of the player who makes the last move of the game. Then, the optimal action of the next to last moving player is determined assuming the last player's action as given. The process continues until all player's actions have been determined. Subgame perfect equilibria eliminate noncredible threats.