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Effecting Cooperation

Author Info

Listed author(s):
  • Olivier Compte

    ()

    (Paris School of Economics, Ecole Nationale des Ponts et Chaussées, CERAS)

  • Andrew Postlewaite

    ()

    (Department of Economics, University of Pennsylvania)

Abstract

There is a large repeated games literature illustrating how future interactions provide incentives for cooperation. Much of this literature assumes public monitoring: players always observe precisely the same thing. Even slight deviations from public monitoring to private monitoring that incorporate differences in players’ observations dramatically complicate coordination. Equilibria with private monitoring often seem unrealistically complex. We set out a model in which players accomplish cooperation in an intuitively plausible fashion. Players process information via a mental system — a set of psychological states and a transition function between states depending on observations. Players restrict attention to a relatively small set of simple strategies, and consequently, might learn which perform well.

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File URL: http://economics.sas.upenn.edu/system/files/working-papers/09-019.pdf
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Paper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number 09-019.

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Length: 36 pages
Date of creation: 01 Jul 2007
Date of revision: 29 May 2009
Handle: RePEc:pen:papers:09-019
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Keywords: Repeated games; private monitoring; bounded rationality; cooperation;

Other versions of this item:

Find related papers by JEL classification:
  • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
  • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General

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  1. Michihiro Kandori & Ichiro Obara, 2007. "Finite State Equilibria in Dynamic Games," 2007 Meeting Papers 253, Society for Economic Dynamics.
  2. Bagwell, Kyle, 1995. "Commitment and observability in games," Games and Economic Behavior, Elsevier, vol. 8(2), pages 271-280.
  3. Christopher Phelan & Andrzej Skrzypacz, 2006. "Private monitoring with infinite histories," Staff Report 383, Federal Reserve Bank of Minneapolis.
  4. Ben-porath, Elchanan, 1990. "The complexity of computing a best response automaton in repeated games with mixed strategies," Games and Economic Behavior, Elsevier, vol. 2(1), pages 1-12, March.
  5. Kalai, Ehud & Stanford, William, 1988. "Finite Rationality and Interpersonal Complexity in Repeated Games," Econometrica, Econometric Society, vol. 56(2), pages 397-410, March.
  6. Mailath, George J. & Morris, Stephen, 2002. "Repeated Games with Almost-Public Monitoring," Journal of Economic Theory, Elsevier, vol. 102(1), pages 189-228, January.
  7. Sekiguchi, Tadashi, 1997. "Efficiency in Repeated Prisoner's Dilemma with Private Monitoring," Journal of Economic Theory, Elsevier, vol. 76(2), pages 345-361, October.
  8. Piccione, Michele & Rubinstein, Ariel, 1997. "On the Interpretation of Decision Problems with Imperfect Recall," Games and Economic Behavior, Elsevier, vol. 20(1), pages 3-24, July.
  9. Compte, Olivier, 2002. "On Sustaining Cooperation without Public Observations," Journal of Economic Theory, Elsevier, vol. 102(1), pages 106-150, January.
  10. Abreu, Dilip & Rubinstein, Ariel, 1988. "The Structure of Nash Equilibrium in Repeated Games with Finite Automata," Econometrica, Econometric Society, vol. 56(6), pages 1259-1281, November.
  11. Kandori, Michihiro & Mailath, George J & Rob, Rafael, 1993. "Learning, Mutation, and Long Run Equilibria in Games," Econometrica, Econometric Society, vol. 61(1), pages 29-56, January.
  12. Ben-Porath Elchanan, 1993. "Repeated Games with Finite Automata," Journal of Economic Theory, Elsevier, vol. 59(1), pages 17-32, February.
  13. Piccione, Michele, 2002. "The Repeated Prisoner's Dilemma with Imperfect Private Monitoring," Journal of Economic Theory, Elsevier, vol. 102(1), pages 70-83, January.
  14. Andrew Postlewaite & Olivier Compte, 2008. "Repeated Relationships with Limits on Information Processing," PIER Working Paper Archive 08-026, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  15. Olivier Compte, 1998. "Communication in Repeated Games with Imperfect Private Monitoring," Econometrica, Econometric Society, vol. 66(3), pages 597-626, May.
  16. Sainty, Barbara, 1999. "Achieving greater cooperation in a noisy prisoner's dilemma: an experimental investigation," Journal of Economic Behavior & Organization, Elsevier, vol. 39(4), pages 421-435, July.
  17. Abreu, Dilip, 1986. "Extremal equilibria of oligopolistic supergames," Journal of Economic Theory, Elsevier, vol. 39(1), pages 191-225, June.
  18. Miller, John H., 1996. "The coevolution of automata in the repeated Prisoner's Dilemma," Journal of Economic Behavior & Organization, Elsevier, vol. 29(1), pages 87-112, January.
  19. Gilboa, Itzhak, 1988. "The complexity of computing best-response automata in repeated games," Journal of Economic Theory, Elsevier, vol. 45(2), pages 342-352, August.
  20. Jonathan Bendor & Roderick M. Kramer & Suzanne Stout, 1991. "When in Doubt..," Journal of Conflict Resolution, Peace Science Society (International), vol. 35(4), pages 691-719, December.
  21. Michihiro Kandori, 1992. "Social Norms and Community Enforcement," Review of Economic Studies, Oxford University Press, vol. 59(1), pages 63-80.
  22. Michihiro Kandori & Hitoshi Matsushima, 1998. "Private Observation, Communication and Collusion," Econometrica, Econometric Society, vol. 66(3), pages 627-652, May.
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Cited by:

  1. Julian Romero, 2011. "Finite Automata in Undiscounted Repeated Games with Private Monitoring," Purdue University Economics Working Papers 1260, Purdue University, Department of Economics.
  2. Daniel Monte & Maher Said, 2014. "The value of (bounded) memory in a changing world," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 56(1), pages 59-82, May.

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