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Folk Theorems for Present-Biased Players

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  • Bernergård, Axel

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    (Dept. of Economics, Stockholm School of Economics)

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    Abstract

    The folk theorems for infinitely repeated games with discounting presume that the discount rate between two successive periods is constant. Following the literature on quasi-exponential or hyperbolic discounting, I model the repeated interaction between two or more decision makers in a way that allows present-biased discounting where the discount factor between two successive periods increases with the waiting time until the periods are reached. I generalize Fudenberg and Maskin's (1986) and Abreu, Dutta and Smith's (1994) folk theorems for repeated games with discounting so that they apply when discounting is present-biased. Patience is then represented either by the discount factor between the next and the current period or, alternatively, by the sum of the discount factors for all future periods.

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    Bibliographic Info

    Paper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 736.

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    Length: 24 pages
    Date of creation: 19 Jun 2011
    Date of revision:
    Handle: RePEc:hhs:hastef:0736

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    Keywords: folk theorem; present-biased; discounting; hyperbolic;

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    1. Ehud Lehrer & Ady Pauzner, 1999. "Repeated Games with Differential Time Preferences," Econometrica, Econometric Society, Econometric Society, vol. 67(2), pages 393-412, March.
    2. Joseph Eisenhauer & Luigi Ventura, 2006. "The prevalence of hyperbolic discounting: some European evidence," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 38(11), pages 1223-1234.
    3. Per Krusell & Anthony A. Smith, Jr., . "Consumption-Savings Decisions with Quasi-Geometric Discounting," GSIA Working Papers, Carnegie Mellon University, Tepper School of Business 2001-05, Carnegie Mellon University, Tepper School of Business.
    4. Laibson, David, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 112(2), pages 443-77, May.
    5. Goldman, Steven M, 1980. "Consistent Plans," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 47(3), pages 533-37, April.
    6. Hector Chade & Pavlo Prokopovych & Lones Smith, 2006. "Repeated Games with Present-Biased Preferences," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1555, Cowles Foundation for Research in Economics, Yale University.
    7. Peleg, Bezalel & Yaari, Menahem E, 1973. "On the Existence of a Consistent Course of Action when Tastes are Changing," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 40(3), pages 391-401, July.
    8. Maria Saez-Marti & Jorgen W. Weibull, 2005. "Discounting and altruism to future decision-makers," NajEcon Working Paper Reviews, www.najecon.org 784828000000000001, www.najecon.org.
    9. Mailath, George J. & Samuelson, Larry, 2006. "Repeated Games and Reputations: Long-Run Relationships," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780195300796, October.
    10. Abreu, Dilip & Dutta, Prajit K & Smith, Lones, 1994. "The Folk Theorem for Repeated Games: A NEU Condition," Econometrica, Econometric Society, Econometric Society, vol. 62(4), pages 939-48, July.
    11. Loewenstein, George & Prelec, Drazen, 1992. "Anomalies in Intertemporal Choice: Evidence and an Interpretation," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 107(2), pages 573-97, May.
    12. Warneryd, Karl, 2007. "Sexual reproduction and time-inconsistent preferences," Economics Letters, Elsevier, Elsevier, vol. 95(1), pages 14-16, April.
    13. Rubinstein, Ariel, 1979. "Equilibrium in supergames with the overtaking criterion," Journal of Economic Theory, Elsevier, Elsevier, vol. 21(1), pages 1-9, August.
    14. Thaler, Richard, 1981. "Some empirical evidence on dynamic inconsistency," Economics Letters, Elsevier, Elsevier, vol. 8(3), pages 201-207.
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