Repeated Relationships with Limits on Information Processing
AbstractMany important strategic problems are characterized by repeated interactions among agents. There is a large literature in game theory and economics illustrating how considerations of future interactions can provide incentives for cooperation that would not be possible in one-shot interactions. Much of the work in repeated games assumes public monitoring: players observe precisely the same thing at each stage of the game. It is well-understood that even slight deviations from public monitoring increase dramatically the difficulty the problems players face in coordinating their actions. Repeated games with private monitoring incorporate differences in what players observe at each stage. Equilibria in repeated games with private monitoring, however, often seem unrealistic; the equilibrium strategies may be highly complex and very sensitive to the fine details of the stochastic relationship between players’ actions and observations. Furthermore, there is no realistic story about how players might arrive at their equilibrium strategies. We propose an alternative approach to understanding how people cooperate. Each player is endowed with a mental system that processes information: a mental system consists of a number of psychological states and a transition function between states that depends on observations made. In this world, a strategy is just a function from states to actions. Our framework has the following desirable properties: (i) players restrict attention to a relatively small set of simple strategies. (ii) the number of strategies that players compare is small enough that players might ultimately learn which perform well. We find that some mental systems allow agents to cooperate under a broad set of parameters, while others are not conducive to cooperation.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number 08-026.
Length: 38 pages
Date of creation: 23 Jul 2008
Date of revision:
Repeated Games; Private Monitoring; Mental States;
Other versions of this item:
- Olivier Compte & Andrew Postlewaite, 2008. "Repeated Relationships with Limits on Information Processing," Levine's Working Paper Archive 122247000000002307, David K. Levine.
- D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
- D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-07-30 (All new papers)
- NEP-CBE-2008-07-30 (Cognitive & Behavioural Economics)
- NEP-GTH-2008-07-30 (Game Theory)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Piccione, Michele, 2002. "The Repeated Prisoner's Dilemma with Imperfect Private Monitoring," Journal of Economic Theory, Elsevier, vol. 102(1), pages 70-83, January.
- M. Kandori & G. Mailath & R. Rob, 1999.
"Learning, Mutation and Long Run Equilibria in Games,"
Levine's Working Paper Archive
500, David K. Levine.
- Kandori, Michihiro & Mailath, George J & Rob, Rafael, 1993. "Learning, Mutation, and Long Run Equilibria in Games," Econometrica, Econometric Society, vol. 61(1), pages 29-56, January.
- Kandori, M. & Mailath, G.J., 1991. "Learning, Mutation, And Long Run Equilibria In Games," Papers 71, Princeton, Woodrow Wilson School - John M. Olin Program.
- Mailath, George J. & Morris, Stephen, 2002.
"Repeated Games with Almost-Public Monitoring,"
Journal of Economic Theory,
Elsevier, vol. 102(1), pages 189-228, January.
- George J. Mailath & Stephen Morris, 1999. "Repeated Games with Almost-Public Monitoring," CARESS Working Papres almost-pub, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences, revised 01 Sep 2000.
- George J. Mailath & Stephen Morris, 2000. "Repeated Games with Almost-Public Monitoring," Econometric Society World Congress 2000 Contributed Papers 0661, Econometric Society.
- George J Mailath & Stephen Morris, 1999. "Repeated Games with Almost Public Monitoring," Levine's Working Paper Archive 2107, David K. Levine.
- George Mailath & Stephen Morris, . ""Repeated Games with Almost-Public Monitoring''," CARESS Working Papres 99-09, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
- George J. Mailath & Stephen Morris, 1999. "Repeated Games with Almost-Public Monitoring," Cowles Foundation Discussion Papers 1236, Cowles Foundation for Research in Economics, Yale University.
- George J Mailath & Stephen Morris, 2001. "Repeated Games with Almost-Public Monitoring," NajEcon Working Paper Reviews 625018000000000257, www.najecon.org.
- George J Mailath & Stephen Morris, 2001. "Repeated Games with Almost-Public Monitoring," Levine's Working Paper Archive 625018000000000257, David K. Levine.
- George Mailath & Stephen Morris, . "Repeated Games with Almost-Public Monitoring," Penn CARESS Working Papers 6bf0f633ff55148107994e092, Penn Economics Department.
- Olivier Compte, 1998. "Communication in Repeated Games with Imperfect Private Monitoring," Econometrica, Econometric Society, vol. 66(3), pages 597-626, May.
- Miller, John H., 1996. "The coevolution of automata in the repeated Prisoner's Dilemma," Journal of Economic Behavior & Organization, Elsevier, vol. 29(1), pages 87-112, January.
- Kandori, Michihiro, 1992.
"Social Norms and Community Enforcement,"
Review of Economic Studies,
Wiley Blackwell, vol. 59(1), pages 63-80, January.
- Michihiro Kandori & Hitoshi Matsushima, 1998. "Private Observation, Communication and Collusion," Econometrica, Econometric Society, vol. 66(3), pages 627-652, May.
- Christopher Phelan & Andrzej Skrzypacz, 2006.
"Private monitoring with infinite histories,"
383, Federal Reserve Bank of Minneapolis.
- Okuno-Fujiwara Masahiro & Postlewaite Andrew, 1995. "Social Norms and Random Matching Games," Games and Economic Behavior, Elsevier, vol. 9(1), pages 79-109, April.
- Sainty, Barbara, 1999. "Achieving greater cooperation in a noisy prisoner's dilemma: an experimental investigation," Journal of Economic Behavior & Organization, Elsevier, vol. 39(4), pages 421-435, July.
- Akin, Zafer, 2009.
"Imperfect information processing in sequential bargaining games with present biased preferences,"
Journal of Economic Psychology,
Elsevier, vol. 30(4), pages 642-650, August.
- Zafer Akin, 2008. "Imperfect Information Processing in Sequential Bargaining Games with Present Biased Preferences," Working Papers 0810, TOBB University of Economics and Technology, Department of Economics.
- Berg, Nathan & Biele, Guido & Gigerenzer, Gerd, 2010.
"Does Consistency Predict Accuracy of Beliefs?: Economists Surveyed About PSA,"
24976, University Library of Munich, Germany.
- Berg, Nathan & Biele, Guido & Gigerenzer, Gerd, 2010. "Does consistency predict accuracy of beliefs?: Economists surveyed about PSA," MPRA Paper 26590, University Library of Munich, Germany.
- repec:ner:dauphi:urn:hdl:123456789/5434 is not listed on IDEAS
- David A. Miller & Kareen Rozen, 2011. "We study optimal contracting in team settings, featuring stylized aspects of production environments with complex tasks. Agents have many opportunities to shirk, task-level monitoring is needed to pro," Cowles Foundation Discussion Papers 1823, Cowles Foundation for Research in Economics, Yale University, revised Jun 2012.
- David A. Miller & Kareen Rozen, 2011. "Optimally Empty Promises and Endogenous Supervision," Levine's Working Paper Archive 786969000000000270, David K. Levine.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dolly Guarini).
If references are entirely missing, you can add them using this form.