PBNEPerfect Bayesian Nash Equilibrium (economics)
PBNEPhiladelphia, Bethlehem and New England Railroad Company
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The auditing game only has a PBNE in mixed strategies.
In a PBNE in mixed strategies, insurers choose their audit strategy in order to make policyholders without a loss indifferent between their actions.
Proposition 1: If [beta] > c, [pi] < 1/2 and [phi] > [[kappa].sup.c] hold, the unique PBNE in mixed strategies for a given fraud detection system with [phi] > [delta] > 0 has the following properties:
A PBNE in mixed strategies will only exist if a policyholder is able to make the insurer indifferent between its action.
Constraints (4) and (3) represent the PBNE strategies of the players.