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Forgiving-Proof Equilibrium in Infinitely Repeated Games

Author

Listed:
  • Aramendia Miguel

    (Universidad del Pais Vasco)

  • Ruiz Luis

    (Universidad del Pais Vasco)

  • Wen Quan

    (Vanderbilt University)

Abstract

In repeated games, equilibrium often requires that any deviation be punished in the continuation, regardless of whether it is beneficial to the other players. It seems against the nature of non-cooperative game theory for the other players to decide what to do based on what one player did, rather than on the well-being of themselves. We introduce a new solution concept called a forgiving-proof equilibrium that recommends continuing as if nothing had happened after a player deviates without harming the others. A folk theorem is established to characterize the set of forgiving-proof equilibrium payoffs when players are sufficiently patient. The concept of forgiving-proof equilibrium significantly reduces the set of equilibrium outcomes in many repeated games.

Suggested Citation

  • Aramendia Miguel & Ruiz Luis & Wen Quan, 2008. "Forgiving-Proof Equilibrium in Infinitely Repeated Games," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 8(1), pages 1-17, February.
    • Handle: RePEc:bpj:bejtec:v:8:y:2008:i:1:n:5
    DOI: 10.2202/1935-1704.1440
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    Cited by:

    1. Kyle Bagwell, 2009. "Self-Enforcing Trade Agreements and Private Information," NBER Working Papers 14812, National Bureau of Economic Research, Inc.

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