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Cooperation in the Repeated Prisoner’s Dilemma with Local Interaction

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Author Info
Xue, J.
Abstract

This paper studies the repeated Prisoner’s Dilemma in a local interaction setup. We construct a sequential equilibrium in pure strategies that sustains cooperation for suffciently patient players. The strategy is embedded in an explicitly defined expectation system, which is a more compact way than machines to describe strategies in the local interaction setup, although essentially the expectation system can also be viewed as a finite state automaton. The belief system is derived by perturbing the strategy appropriately and following the principle that parsimonious explanations receive all the weight. The equilibrium has the property that after any global history, full cooperation will be restored after a finite number of periods.

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Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0612.

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Length: 34
Date of creation: Feb 2006
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Handle: RePEc:cam:camdae:0612

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Keywords: Prisoner’s dilemma; local interaction; expectation;

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Find related papers by JEL classification:
C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory

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  1. Bhaskar, V, 1998. "Informational Constraints and the Overlapping Generations Model: Folk and Anti-Folk Theorems," Review of Economic Studies, Blackwell Publishing, vol. 65(1), pages 135-49, January. [Downloadable!] (restricted)
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  2. Kandori, Michihiro, 1992. "Social Norms and Community Enforcement," Review of Economic Studies, Blackwell Publishing, vol. 59(1), pages 63-80, January. [Downloadable!] (restricted)
  3. Bergstrom, T.C. & Stark, O., 1993. "How Altruism Can Prevail in an Evolutionary Environment," Papers 93-01, Michigan - Center for Research on Economic & Social Theory.
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  4. repec:att:wimass:199612r is not listed on IDEAS
  5. Ellison, Glenn, 1994. "Cooperation in the Prisoner's Dilemma with Anonymous Random Matching," Review of Economic Studies, Blackwell Publishing, vol. 61(3), pages 567-88, July. [Downloadable!] (restricted)
  6. Fudenberg, Drew & Maskin, Eric, 1986. "The Folk Theorem in Repeated Games with Discounting or with Incomplete Information," Econometrica, Econometric Society, vol. 54(3), pages 533-54, May. [Downloadable!] (restricted)
  7. Eshel, Ilan & Samuelson, Larry & Shaked, Avner, 1998. "Altruists, Egoists, and Hooligans in a Local Interaction Model," American Economic Review, American Economic Association, vol. 88(1), pages 157-79, March. [Downloadable!] (restricted)
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