Returns-Based Beliefs and The Prisoner’s Dilemma

Chander Velu and Sriya Iyer

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: 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.

Keywords: Prisoner’s Dilemma; Rationality; Subjective Probabilities; Returns-Based Beliefs. (search for similar items in EconPapers)
JEL-codes: C72 D43 (search for similar items in EconPapers)
Date: 2008-11
New Economics Papers: this item is included in nep-gth
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Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:0854

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