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Cooperative equilibria in the finite iterated prisoner's dilemma

Listed author(s):
  • Kae Nemoto

    (National Institute of Informatics, Japan)

  • Michael J Gagen

    (Institute for Molecular Bioscience, University of Queensland)

Nash equilibria are defined using uncorrelated behavioural or mixed joint probability distributions effectively assuming that players of bounded rationality must discard information to locate equilibria. We propose instead that rational players will use all the information available in correlated distributions to constrain payoff function topologies and gradients to generate novel 'constrained' equilibria, each one a backwards induction pathway optimizing payoffs in the constrained space. In the finite iterated prisoner's dilemma, we locate constrained equilibria maximizing payoffs via cooperation additional to the unconstrained (Nash) equilibrium maximizing payoffs via defection. Our approach clarifies the usual assumptions hidden in backwards induction.

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Paper provided by EconWPA in its series Game Theory and Information with number 0404001.

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Length: 15 pages
Date of creation: 12 Apr 2004
Handle: RePEc:wpa:wuwpga:0404001
Note: Type of Document - pdf; pages: 15
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