Testing Threats in Repeated Games
AbstractI introduce a solution concept for infinite-horizon games, called âNash equilibrium with added testsâ, in which players optimize with respect to relevant threats only after having tested them before. Both the optimal response and the tests are part of equilibrium behavior. The concept is applied to repeated 2Ã2 games and yields the following results: 1) Sustained cooperation in games such as the Prisonerâs Dilemma is preceded by a âbuild upâ phase, whose comparative statics are characterized. 2) Sustainability of long-run cooperation by means of familiar selfenforcement conventions varies with the payoff structure. E.g., âconstructive reciprocityâ achieves cooperation with minimal buildup time in the Prisonerâs Dilemma, yet it is inconsistent with long-run cooperation in Chicken. 3) Nevertheless, a âfolk theoremâ holds for this class of games.
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Date of creation: 13 Jan 2002
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Other versions of this item:
- Spiegler, R., 2001. "Testing Threats in Repeated Games," Papers 2001-28, Tel Aviv.
- Ran Spiegler, 2002. "Testing Threats in Repeated Games," NajEcon Working Paper Reviews 391749000000000445, www.najecon.org.
- Ran Spiegler, 2001. "Testing Threats in Repeated Games," Economics Working Papers 0009, Institute for Advanced Study, School of Social Science.
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
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