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Backwards induction: solve from the terminal state

Set the value at the terminal state, then walk backwards one step at a time. Lets you price American options and solve finite-horizon games.

Method · Backwards Induction
Intro
A directed acyclic graph showing how Fibonacci sub-problems overlap when solved bottom-up β€” the canonical visualisation for solving from the terminal state back.
User:Dcoatzee, traced by User:Stannered · Public Domain · Wikimedia Commons

When the game has a finite end, don’t plan forward. Start from the END — where the answer is obvious — and walk backwards. At each state ask: “can I move to a state my opponent loses from?” If yes, I win. We’ll show this on a 10-match game.

βœ“ Intro Β· expand
Independent · Legal