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Plausible Cooperation, Second Version

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  • Andrew Postlewaite

    ()
    (Department of Economics, University of Pennsylvania)

  • Olivier Compte

    ()
    (Paris School of Economics)

Abstract

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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Bibliographic Info

Paper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number 10-039.

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Length: 33 pages
Date of creation: 12 May 2009
Date of revision: 16 Dec 2010
Handle: RePEc:pen:papers:10-039

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Keywords: Repeated games; private monitoring; bounded rationality; cooperation;

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References

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  1. Andrew Postlewaite & Olivier Compte, 2008. "Repeated Relationships with Limits on Information Processing," PIER Working Paper Archive 08-026, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  2. Piccione, Michele, 2002. "The Repeated Prisoner's Dilemma with Imperfect Private Monitoring," Journal of Economic Theory, Elsevier, vol. 102(1), pages 70-83, January.
  3. Mailath, George J. & Morris, Stephen, 2002. "Repeated Games with Almost-Public Monitoring," Journal of Economic Theory, Elsevier, vol. 102(1), pages 189-228, January.
  4. Abreu, Dilip, 1986. "Extremal equilibria of oligopolistic supergames," Journal of Economic Theory, Elsevier, vol. 39(1), pages 191-225, June.
  5. Kandori, Michihiro, 1992. "Social Norms and Community Enforcement," Review of Economic Studies, Wiley Blackwell, vol. 59(1), pages 63-80, January.
  6. M. Kandori & G. Mailath & R. Rob, 1999. "Learning, Mutation and Long Run Equilibria in Games," Levine's Working Paper Archive 500, David K. Levine.
  7. Ehud Kalai & William Stanford, 1986. "Finite Rationality and Interpersonal Complexity in Repeated Games," Discussion Papers 679, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  8. Compte, Olivier, 2002. "On Sustaining Cooperation without Public Observations," Journal of Economic Theory, Elsevier, vol. 102(1), pages 106-150, January.
  9. Piccione, Michele & Rubinstein, Ariel, 1997. "On the Interpretation of Decision Problems with Imperfect Recall," Games and Economic Behavior, Elsevier, vol. 20(1), pages 3-24, July.
  10. Kyle Bagwell, 1992. "Commitment and Observability in Games," Discussion Papers 1014, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  11. Christopher Phelan & Andrzej Skrzypacz, 2007. "Private Monitoring with Infinite Histories," NajEcon Working Paper Reviews 843644000000000079, www.najecon.org.
  12. 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.
  13. Gilboa, Itzhak, 1988. "The complexity of computing best-response automata in repeated games," Journal of Economic Theory, Elsevier, vol. 45(2), pages 342-352, August.
  14. Sekiguchi, Tadashi, 1997. "Efficiency in Repeated Prisoner's Dilemma with Private Monitoring," Journal of Economic Theory, Elsevier, vol. 76(2), pages 345-361, October.
  15. Michihiro Kandori & Hitoshi Matsushima, 1998. "Private Observation, Communication and Collusion," Econometrica, Econometric Society, vol. 66(3), pages 627-652, May.
  16. Ben-porath, Elchanan, 1990. "The complexity of computing a best response automaton in repeated games with mixed strategies," Games and Economic Behavior, Elsevier, vol. 2(1), pages 1-12, March.
  17. Olivier Compte, 1998. "Communication in Repeated Games with Imperfect Private Monitoring," Econometrica, Econometric Society, vol. 66(3), pages 597-626, May.
  18. 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.
  19. Ben-Porath Elchanan, 1993. "Repeated Games with Finite Automata," Journal of Economic Theory, Elsevier, vol. 59(1), pages 17-32, February.
  20. Abreu, Dilip & Rubinstein, Ariel, 1988. "The Structure of Nash Equilibrium in Repeated Games with Finite Automata," Econometrica, Econometric Society, vol. 56(6), pages 1259-81, November.
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Cited by:
  1. Julian Romero, 2011. "Finite Automata in Undiscounted Repeated Games with Private Monitoring," Purdue University Economics Working Papers 1260, Purdue University, Department of Economics.
  2. Monte, Daniel & Said, Maher, 2010. "Learning in hidden Markov models with bounded memory," MPRA Paper 23854, University Library of Munich, Germany, revised 23 Jun 2010.

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