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Testing Threats in Repeated Games

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  • Ran Spiegler

    (Eitan Berglas School of Economics, Tel Aviv University)

Abstract

I introduce a solution concept for infinite-horizon games, called “Nash equilibrium with added tests”, in which players optimize with respect to relevant threats only after having tested them before. Both the optimal response and the tests are part of equilibrium behavior. The concept is applied to repeated 2×2 games and yields the following results: 1) Sustained cooperation in games such as the Prisoner’s Dilemma is preceded by a “build up” phase, whose comparative statics are characterized. 2) Sustainability of long-run cooperation by means of familiar selfenforcement conventions varies with the payoff structure. E.g., “constructive reciprocity” achieves cooperation with minimal buildup time in the Prisoner’s Dilemma, yet it is inconsistent with long-run cooperation in Chicken. 3) Nevertheless, a “folk theorem” holds for this class of games.

Suggested Citation

  • Ran Spiegler, 2001. "Testing Threats in Repeated Games," Economics Working Papers 0009, Institute for Advanced Study, School of Social Science.
  • Handle: RePEc:ads:wpaper:0009
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    References listed on IDEAS

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    Cited by:

    1. Ran Spiegler, 2006. "The Market for Quacks," Review of Economic Studies, Oxford University Press, vol. 73(4), pages 1113-1131.
    2. Mathevet, Laurent, 2018. "An axiomatization of plays in repeated games," Games and Economic Behavior, Elsevier, vol. 110(C), pages 19-31.
    3. Irene C. L. Ng & Lu‐Ming Tseng, 2008. "Learning to be Sociable: The Evolution of Homo Economicus," American Journal of Economics and Sociology, Wiley Blackwell, vol. 67(2), pages 265-286, April.
    4. Hubie Chen, 2013. "Bounded rationality, strategy simplification, and equilibrium," International Journal of Game Theory, Springer;Game Theory Society, vol. 42(3), pages 593-611, August.

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    More about this item

    Keywords

    Game Theory; Prisoner's Dilemma;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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