Olivier Compte () (Paris School of Economics, Ecole Nationale des Ponts et Chaussées, CERAS) Andrew Postlewaite () (Department of Economics, University of Pennsylvania)
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There is a large repeated games literature illustrating how future interactions provide incentives for cooperation. Much of this literature assumes public monitoring: players always observe precisely the same thing. Even slight deviations from public monitoring to private monitoring that incorporate differences in players’ observations dramatically complicate coordination. Equilibria with private monitoring often seem unrealistically complex. We set out a model in which players accomplish cooperation in an intuitively plausible fashion. Players process information via a mental system — a set of psychological states and a transition function between states depending on observations. Players restrict attention to a relatively small set of simple strategies, and consequently, might learn which perform well.
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Paper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number
09-019.
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