Repeated Games and Reputations: Long-Run Relationships by George J. Mailath, Larry Samuelson

By George J. Mailath, Larry Samuelson

Customized and carrying on with relationships play a imperative position in any society. Economists have equipped upon the theories of repeated video games and reputations to make very important advances in realizing such relationships. Repeated video games and Reputations starts off with a cautious improvement of the basic suggestions in those theories, together with the notions of a repeated online game, procedure, and equilibrium. Mailath and Samuelson then current the vintage people theorem and acceptance effects for video games of ideal and imperfect public tracking, with the advantage of the trendy analytical instruments of decomposability and self-generation. additionally they current more moderen advancements, together with effects past people theorems and up to date paintings in video games of non-public tracking and substitute techniques to reputations. Repeated video games and Reputations synthesizes and unifies the monstrous physique of labor during this sector, bringing the reader to the study frontier. particular arguments and proofs are given all through, interwoven with examples, discussions of the way the idea is for use within the examine of relationships, and financial functions. The ebook could be precious to these doing uncomplicated learn within the thought of repeated video games and reputations in addition to these utilizing those instruments in additional utilized examine.

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7. Because there is a natural bijection (one-to-one and onto mapping) between H and each player’s collection of information sets, this is the standard notion of an extensive-form strategy. 8. Two strategies for a player i are realization equivalent if, fixing the strategies of the other players, the two strategies of player i induce the same distribution over outcomes. 3, p. 127), and the same is true here. 6, p. 66 for a proof (though the proof is conceptually identical to the finite case, the infinite horizon introduces some technical issues).

For a payoff of (1 − δ) 4(1 + δ 2 + δ 4 + · · · ) − 1(δ + δ 3 + δ 5 + · · · ) = 4−δ . 1+δ There are then no profitable one-shot deviations whose differences from the equilibrium strategy appear after equilibrium histories if and only if δ ≥ 14 . However, when δ = 1/4, the most attractive deviation from tit-for-tat in this game is perpetual shirking, which is not a one-shot deviation. For this deviation to be unprofitable, it must be that 3 ≥ (1 − δ)4 + δ = 4 − 3δ, and hence δ ≥ 13 . For δ ∈ [1/4, 1/3) tit-for-tat is thus not a Nash equilibrium, despite the absence of profitable one-shot deviations that differ from tit-for-tat only after equilibrium histories.

If all players follow the strategy profile in subsequent periods (a circumstance the one-shot deviation principle makes of interest), then player i expects a continuation value of Vi (w ). Accordingly, we interpret Vi (w ) as a continuation promise and view the profile as making such promises. Intuitively, a subgame-perfect equilibrium strategy profile is one whose continuation promises are credible. Given the continuation promise Vi (w ) for player i at 10. 1) is a contraction on the space of bounded functions on W , and so has a unique fixed point.

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