Learning to Forgive

Thomas Norman

No 296, Economics Series Working Papers from University of Oxford, Department of Economics

Abstract: The Folk Theorem for infinitely repeated games offers an embarrassment of riches; nowhere is equilibrium multiplicity more acute. This paper selects amongst these equilibria in the following sense. If players learn to play an infinitely repeated game using classical hypothesis testing, it is known that their strategies almost always approximate equilibria of the repeated game. It is shown here that if, in addition, they are sufficiently conservative in adopting their hypotheses, then almost all of the time is spent approximating an efficient subset of equilibria that share a forgiving property. This result provides theoretical justification for the general sense amongst practitioners that efficiency is focal in such games.

Keywords: Repeated Games; Folk Theorem; Learning; Hypothesis Testing; Equilibrium Selection (search for similar items in EconPapers)
JEL-codes: C12 C72 (search for similar items in EconPapers)
Date: 2006-12-01
New Economics Papers: this item is included in nep-evo and nep-gth
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