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Construction of Subgame-Perfect Mixed-Strategy Equilibria in Repeated Games

Author

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  • Kimmo Berg

    (Department of Mathematics and Systems Analysis, Aalto University School of Science, P.O. Box 11100, FI-00076 Aalto, Finland)

  • Gijs Schoenmakers

    (Department of Data Science and Knowledge Engineering, Maastricht University, P.O. Box 616, 6200MD Maastricht, The Netherlands)

Abstract

This paper examines how to construct subgame-perfect mixed-strategy equilibria in discounted repeated games with perfect monitoring. We introduce a relatively simple class of strategy profiles that are easy to compute and may give rise to a large set of equilibrium payoffs. These sets are called self-supporting sets, since the set itself provides the continuation payoffs that are required to support the equilibrium strategies. Moreover, the corresponding strategies are simple as the players face the same augmented game on each round but they play different mixed actions after each realized pure-action profile. We find that certain payoffs can be obtained in equilibrium with much lower discount factor values compared to pure strategies. The theory and the concepts are illustrated in 2 × 2 games.

Suggested Citation

  • Kimmo Berg & Gijs Schoenmakers, 2017. "Construction of Subgame-Perfect Mixed-Strategy Equilibria in Repeated Games," Games, MDPI, vol. 8(4), pages 1-14, November.
    • Handle: RePEc:gam:jgames:v:8:y:2017:i:4:p:47-:d:117286
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    1. Mitri Kitti, 2018. "Subgame Perfect Equilibria in Continuous-Time Repeated Games," Discussion Papers 120, Aboa Centre for Economics.

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