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Equilibrium Selection in the Repeated Prisoner's Dilemma: Axiomatic Approach and Experimental Evidence

  • Matthias Blonski
  • Peter Ockenfels
  • Giancarlo Spagnolo

We propose an axiomatic approach for equilibrium selection in the discounted, infinitely repeated symmetric Prisoner's Dilemma. Our axioms characterize a unique selection criterion that is also useful as a tool for applied comparative statics exercises as it results in a critical discount factor δ* strictly larger than δ, the standard criterion that has often been used in applications. In an experimental test we find a strong predictive power of our proposed criterion. For parameter changes where the standard and our criterion predict differently, changes in observed cooperation follow predictions based on δ* . (JEL C72, C73, C92, D81)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/mic.3.3.164
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Article provided by American Economic Association in its journal American Economic Journal: Microeconomics.

Volume (Year): 3 (2011)
Issue (Month): 3 (August)
Pages: 164-92

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Handle: RePEc:aea:aejmic:v:3:y:2011:i:3:p:164-92
Note: DOI: 10.1257/mic.3.3.164
Contact details of provider: Web page: https://www.aeaweb.org/aej-micro
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  1. Aoyagi, Masaki & Fréchette, Guillaume, 2009. "Collusion as public monitoring becomes noisy: Experimental evidence," Journal of Economic Theory, Elsevier, vol. 144(3), pages 1135-1165, May.
  2. Kyle Bagwell, 2004. "Collusion and Price Rigidity," Theory workshop papers 658612000000000081, UCLA Department of Economics.
  3. Duffy, John & Ochs, Jack, 2009. "Cooperative behavior and the frequency of social interaction," Games and Economic Behavior, Elsevier, vol. 66(2), pages 785-812, July.
  4. Heinemann, Frank & Nagel, Rosemarie & Ockenfels, Peter, 2004. "Measuring Strategic Uncertainty in Coordination Games," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 6, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  5. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
  6. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, December.
  7. Spagnolo, Giancarlo & Blonski, Matthias, 2001. "Prisoners' Other Dilemma," SSE/EFI Working Paper Series in Economics and Finance 437, Stockholm School of Economics, revised 20 Feb 2001.
  8. Harsanyi John C., 1995. "A New Theory of Equilibrium Selection for Games with Incomplete Information," Games and Economic Behavior, Elsevier, vol. 10(2), pages 318-332, August.
  9. Feinberg, Robert M & Husted, Thomas A, 1993. "An Experimental Test of Discount-Rate Effects on Collusive Behaviour in Duopoly Markets," Journal of Industrial Economics, Wiley Blackwell, vol. 41(2), pages 153-60, June.
  10. James W. Friedman, 1971. "A Non-cooperative Equilibrium for Supergames," Review of Economic Studies, Oxford University Press, vol. 38(1), pages 1-12.
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