An equilibrium of a multi-stage game in which players are informed about the strategy choices of opponents at previous decision nodes. Formally, all past play is common knowledge at the start of each stage. In a closed-loop equilibrium, the information structure allows the choice of a player at decision node to depend on how the opponents have played the game up to that point. The strategy choices, therefore, evolve as progress is made through the stages of the game. In policy games, this is often referred to as the case of discretion. It should be contrasted to an open-loop equilibrium which occurs when the past choices of other players are not observed.
|Reference: Oxford Press Dictonary of Economics, 5th edt.|