FORWARD-LOOKING PRINCIPLE IN REPEATED GAMES

Miguel Aramendia () and Quan Wen ()

International Game Theory Review (IGTR), 2014, vol. 16, issue 04, 1-16

Abstract: In repeated games, equilibria requiring threats of punishment may be implausible if punishing a deviator hurts all the others. When all the punishers suffer from carrying out a punishment in the continuation, it would be in their best interest to forgive the deviation. Taking this line of reasoning into consideration, we introduce the forward-looking principle for subgame perfect equilibrium such that there must be, at least, one punisher who benefits in the continuation by carrying out the punishment. We show that this principle generally reduces payoffs that may arise from equilibrium. We characterize the payoffs that can be supported by subgame perfect equilibrium with forward-looking principle.

Keywords: Repeated games; forward-looking; renegotiation-proof; 91A10; 91A25 (search for similar items in EconPapers)
JEL-codes: B4 C0 C6 C7 D5 D7 M2 (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1142/S021919891450011X

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