Testing Threats in Repeated Games

Ran Spiegler ()

No 9, Economics Working Papers from Institute for Advanced Study, School of Social Science

Abstract: I introduce a solution concept for infinite-horizon games, called “Nash equilibrium with added tests”, in which players optimize with respect to relevant threats only after having tested them before. Both the optimal response and the tests are part of equilibrium behavior. The concept is applied to repeated 2×2 games and yields the following results: 1) Sustained cooperation in games such as the Prisoner’s Dilemma is preceded by a “build up” phase, whose comparative statics are characterized. 2) Sustainability of long-run cooperation by means of familiar selfenforcement conventions varies with the payoff structure. E.g., “constructive reciprocity” achieves cooperation with minimal buildup time in the Prisoner’s Dilemma, yet it is inconsistent with long-run cooperation in Chicken. 3) Nevertheless, a “folk theorem” holds for this class of games.

Keywords: Game Theory; Prisoner's Dilemma (search for similar items in EconPapers)
JEL-codes: C72 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2001-09
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Published in Journal of Economic Theory 121(2) 2005, 214-235

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Related works:
Journal Article: Testing threats in repeated games (2005)
Working Paper: Testing Threats in Repeated Games (2002)
Working Paper: Testing Threats in Repeated Games (2002)
Working Paper: Testing Threats in Repeated Games (2001)
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