Cooperation in the Repeated Prisoner’s Dilemma with Local Interaction

Jun Xue

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

Abstract: This paper studies the repeated Prisoner’s Dilemma in a local interaction setup. We construct a sequential equilibrium in pure strategies that sustains cooperation for suffciently patient players. The strategy is embedded in an explicitly defined expectation system, which is a more compact way than machines to describe strategies in the local interaction setup, although essentially the expectation system can also be viewed as a finite state automaton. The belief system is derived by perturbing the strategy appropriately and following the principle that parsimonious explanations receive all the weight. The equilibrium has the property that after any global history, full cooperation will be restored after a finite number of periods.

Keywords: Prisoner’s dilemma; local interaction; expectation (search for similar items in EconPapers)
JEL-codes: C7 (search for similar items in EconPapers)
Pages: 34
Date: 2006-02
New Economics Papers: this item is included in nep-gth
Note: ET
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Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:0612

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