An equilibrium is credible only if the threats it relies on would actually be carried out at every point they might be needed.
Selten's 1965 refinement of Nash. It rules out equilibria sustained by threats the threatener would never carry out, which is why commitment devices matter — they make the incredible credible.
In practice
- A publisher threatening to pull a book a fortnight from print is not believed, because the printing is already paid for.
- A landlord threatening eviction over a week's arrears is not credible, and both sides know the threat costs more to execute than to abandon.