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Folk Theorems with Bounded Recall under (Almost) Perfect Monitoring, Second Version

Author

Listed:
  • George J. Mailath

    () (Department of Economics)

  • : Wojciech Olszewski

    () (Department of Economics, Northwestern University)

Abstract

A strategy profile in a repeated game has bounded recall L if play under the profile after two distinct histories that agree in the last L periods is equal. Mailath and Morris (2002, 2006) proved that any strict equilibrium in bounded-recall strategies of a game with full support public monitoring is robust to all perturbations of the monitoring structure towards private monitoring (the case of almost-public monitoring), while strict equilibria in unbounded-recall strategies are typically not robust. We prove the perfect-monitoring folk theorem continues to hold when attention is restricted to strategies with bounded recall and the equilibrium is essentially required to be strict. As a consequence, the perfect monitoring folk theorem is shown to be behaviorally robust under almost-perfect almost-public monitoring. That is, the same specification of behavior continues to be an equilibrium when the monitoring is perturbed from perfect to highly-correlated private.

Suggested Citation

  • George J. Mailath & : Wojciech Olszewski, 2008. "Folk Theorems with Bounded Recall under (Almost) Perfect Monitoring, Second Version," PIER Working Paper Archive 08-027, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 28 Jul 2008.
  • Handle: RePEc:pen:papers:08-027
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    File URL: http://economics.sas.upenn.edu/system/files/working-papers/08-027.pdf
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    References listed on IDEAS

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    1. Gilboa Itzhak & Schmeidler David, 1994. "Infinite Histories and Steady Orbits in Repeated Games," Games and Economic Behavior, Elsevier, vol. 6(3), pages 370-399, May.
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    More about this item

    Keywords

    Repeated games; bounded recall strategies; folk theorem; imperfect monitoring;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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