Folk Theorems with Bounded Recall under (Almost) Perfect Monitoring, Second Version

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Folk Theorems with Bounded Recall under (Almost) Perfect Monitoring, Second Version

Author Info

George J. Mailath () (Department of Economics)
: Wojciech Olszewski () (Department of Economics, Northwestern University)

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Abstract

A strategy profile in a repeated game has bounded recall L if play under the profile after two distinct histories that agree in the last L periods is equal. Mailath and Morris (2002, 2006) proved that any strict equilibrium in bounded-recall strategies of a game with full support public monitoring is robust to all perturbations of the monitoring structure towards private monitoring (the case of almost-public monitoring), while strict equilibria in unbounded-recall strategies are typically not robust. We prove the perfect-monitoring folk theorem continues to hold when attention is restricted to strategies with bounded recall and the equilibrium is essentially required to be strict. As a consequence, the perfect monitoring folk theorem is shown to be behaviorally robust under almost-perfect almost-public monitoring. That is, the same specification of behavior continues to be an equilibrium when the monitoring is perturbed from perfect to highly-correlated private.

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Publisher Info
Paper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number 08-027.

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Length: 35 pages
Date of creation: 30 May 2008
Date of revision: 28 Jul 2008
Handle: RePEc:pen:papers:08-027

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Find related papers by JEL classification:
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

This paper has been announced in the following NEP Reports:

NEP-ALL-2008-08-06 (All new papers)
NEP-GTH-2008-08-06 (Game Theory)

References listed on IDEAS
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