Testing Threats in Repeated Games
AbstractUnder most game-theoretic solution concepts, equilibrium beliefs are justified by off-equilibrium events. I propose an equilibrium concept for infinitely repeated games, called "Nash Equilibrium with Tests" (NEWT), according to which players can only justify their equilibrium beliefs with events that take place on the equilibrium path itself. In NEWT, players test every threat that rationalizes a future non-myopic action that they take. The tests are an integral part of equilibrium behavior. Characterization of equilibrium outcomes departs from the classical "folk theorems". The concept provides new insights into the impact of self-enforcement norms, such as reciprocity, on long-run cooperation. (c) 2004 Elsevier Inc. All rights reserved.
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Date of creation: 13 Jan 2002
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Other versions of this item:
- Spiegler, R, 2005. "Testing threats in repeated games," Open Access publications from University College London http://discovery.ucl.ac.u, University College London.
- Ran Spiegler, 2001. "Testing Threats in Repeated Games," Economics Working Papers 0009, Institute for Advanced Study, School of Social Science.
- 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.
- C79 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Other
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