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Returns-Based Beliefs and The Prisoner’s Dilemma

  • Velu, C.
  • Iyer, S.

Returns-based beliefs provides an explanation for the anomaly between the theory and empirics for the one-shot and finitely-repeated Prisoner’s Dilemma games. Even in a fully specified game, there is strategic uncertainty as players attempt to coordinate their actions. Therefore players form subjective probabilities of the actions of their opponents. We provide a new method termed the ‘returns-based beliefs’ approach of forming subjective probabilities that is based upon the expected returns of a particular strategy, in proportion to the total expected returns of all strategies. This method can be applied even in the absence of knowledge of the players’ respective histories.

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Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0854.

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Date of creation: Nov 2008
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Handle: RePEc:cam:camdae:0854
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