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Stable Observable Behavior

Author

Listed:
  • Heller, Yuval
  • Mohlin, Erik

Abstract

We study stable behavior when players are randomly matched to play a game, and before the game begins each player may observe how his partner behaved in a few interactions in the past. We present a novel modeling approach and we show that strict Nash equilibria are always stable in such environments. We apply the model to study the Prisoner's Dilemma. We show that if players only observe past actions, then defection is the unique stable outcome. However, if players are able to observe past action profiles, then cooperation is also stable. Finally, we present extensions that study endogenous observation probabilities and the evolution of preferences.

Suggested Citation

  • Heller, Yuval & Mohlin, Erik, 2015. "Stable Observable Behavior," MPRA Paper 63013, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:63013
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    References listed on IDEAS

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    2. Berger, Ulrich & Grüne, Ansgar, 2014. "Evolutionary Stability of Indirect Reciprocity by Image Scoring," Department of Economics Working Paper Series 4087, WU Vienna University of Economics and Business.
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    More about this item

    Keywords

    Evolutionary stability; random matching; indirect reciprocity; secret handshake; submodularity; image scoring.;

    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
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles

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