Nash Reversion Revisited:Implications of Gain/Loss Asymmetry

Tadashi Sekiguchi and Katsutoshi Wakai

Discussion papers from Graduate School of Economics , Kyoto University

Abstract: Game theory proves the existence of a stronger punishment than the Nash reversion in the repeated games. Recent empirical findings in Oligopoly, however, suggest the implementation of the Nash reversion. In a standard repeated game setting, we propose a potential answer for this empirical puzzle by using a refined version of the discounted utility that exhibits gain/loss asymmetry, where players discount gains more than losses. Our main result is as follows: among gain/loss robust subgame perfect equilibria, the Nash reversion offers the strongest punishment. The robustness is based on the assumption that players are unsure about their own level of gain/loss asymmetry and choose only the strategies that are subgame perfect for any level of gain/loss asymmetry they can perceive as possible.

Keywords: Gain/loss asymmetry; optimal penal code; repeated game; recursive utility; utility smoothing (search for similar items in EconPapers)
JEL-codes: C73 D20 D90 L13 (search for similar items in EconPapers)
Pages: 43
Date: 2025-03
New Economics Papers: this item is included in nep-com, nep-gth, nep-mic and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:kue:epaper:e-24-009

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