Construction of Subgame-Perfect Mixed-Strategy Equilibria in Repeated Games

Kimmo Berg and Gijs Schoenmakers
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Kimmo Berg: Department of Mathematics and Systems Analysis, Aalto University School of Science, P.O. Box 11100, FI-00076 Aalto, Finland
Gijs Schoenmakers: Department of Data Science and Knowledge Engineering, Maastricht University, P.O. Box 616, 6200MD Maastricht, The Netherlands

Games, 2017, vol. 8, issue 4, 1-14

Abstract: This paper examines how to construct subgame-perfect mixed-strategy equilibria in discounted repeated games with perfect monitoring. We introduce a relatively simple class of strategy profiles that are easy to compute and may give rise to a large set of equilibrium payoffs. These sets are called self-supporting sets, since the set itself provides the continuation payoffs that are required to support the equilibrium strategies. Moreover, the corresponding strategies are simple as the players face the same augmented game on each round but they play different mixed actions after each realized pure-action profile. We find that certain payoffs can be obtained in equilibrium with much lower discount factor values compared to pure strategies. The theory and the concepts are illustrated in 2 × 2 games.

Keywords: repeated game; mixed strategy; subgame perfection; payoff set (search for similar items in EconPapers)
JEL-codes: C C7 C70 C71 C72 C73 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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