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How Robust Is the Folk Theorem?

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  • Johannes Hörnerx

    (Yale University.)

  • Wojciech Olszewski

    (Northwestern University.)

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    Abstract

    The folk theorem of repeated games has established that cooperative behavior can be sustained as an equilibrium in repeated settings. Early papers on private monitoring and a recent paper of Cole and Kocherlakota (Games and Economic Behavior, 53 [2005], 59-72) challenge the robustness of this result by providing examples in which cooperation breaks down when players observe only imperfect private signals about other players' actions, or when attention is restricted to strategies with finite memory. This paper shows that Cole and Kocherlakota's result is an artefact of a further restriction that they impose. We prove that the folk theorem with imperfect public monitoring holds with strategies with finite memory. As a corollary, we establish that the folk theorem extends to environments in which monitoring is close to public, yet private. (c) 2009 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology..

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    Bibliographic Info

    Article provided by MIT Press in its journal Quarterly Journal of Economics.

    Volume (Year): 124 (2009)
    Issue (Month): 4 (November)
    Pages: 1773-1814

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    Handle: RePEc:tpr:qjecon:v:124:y:2009:i:4:p:1773-1814

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    Web page: http://mitpress.mit.edu/journals/

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    Web: http://mitpress.mit.edu/journal-home.tcl?issn=00335533

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    Cited by:
    1. Fudenberg, Drew & Yamamoto, Yuichi, 2011. "The Folk Theorem for Irreducible Stochastic Games with Imperfect Public Monitoring," Scholarly Articles 8896226, Harvard University Department of Economics.
    2. Fudenberg, Drew & Ishii, Yuhta & Kominers, Scott Duke, 2014. "Delayed-response strategies in repeated games with observation lags," Scholarly Articles 11880354, Harvard University Department of Economics.
    3. Herings P.J.J. & Meshalkin A. & Predtetchinski A., 2012. "A Folk Theorem for Bargaining Games," Research Memorandum 056, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    4. Mailath, George J. & Olszewski, Wojciech, 2011. "Folk theorems with bounded recall under (almost) perfect monitoring," Games and Economic Behavior, Elsevier, vol. 71(1), pages 174-192, January.
    5. Laclau, Marie, 2012. "A folk theorem for repeated games played on a network," Games and Economic Behavior, Elsevier, vol. 76(2), pages 711-737.
    6. Sugaya, Takuo & Takahashi, Satoru, 2013. "Coordination failure in repeated games with private monitoring," Journal of Economic Theory, Elsevier, vol. 148(5), pages 1891-1928.
    7. Łukasz Balbus & Kevin Reffett & Łukasz Woźny, 2013. "Markov Stationary Equilibria in Stochastic Supermodular Games with Imperfect Private and Public Information," Dynamic Games and Applications, Springer, vol. 3(2), pages 187-206, June.

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