Robust Predictions in Infinite-Horizon Games--an Unrefinable Folk Theorem

Jonathan Weinstein () and Muhamet Yildiz ()

The Review of Economic Studies, 2013, vol. 80, issue 1, 365-394

Abstract: We show that in any game that is continuous at infinity, if a plan of action a i is played by a type t i in a Bayesian Nash equilibrium, then there are perturbations of t i for which a i is the only rationalizable plan and whose unique rationalizable belief regarding the play of the game is arbitrarily close to the equilibrium belief of t i . As an application to repeated games, we prove an unrefinable folk theorem: any individually rational and feasible payoff is the unique rationalizable payoff vector for some perturbed type profile. This is true even if perturbed types are restricted to believe that the repeated-game payoff structure and the discount factor are common knowledge. Copyright , Oxford University Press.

Date: 2013
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