Week 8 Lecture_Repeated_Game0

Week 8 Lecture_Repeated_Game0 - Week 8 Infinitely Repeated...

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Week 8 Infinitely Repeated Prisoner Dilemma Game
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General Prisoner Dilemma CC CC ) CN NC ) NC CN ) NN NN ) C N C N Player 2 Player 1 C: cooperative; N: non-cooperative •Assume π CN < π NN < π CC < π NC (-5,-5) (-30,-1) (-1,-30) (-10,-10) S C S C Clyde Bonnie
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    Infinitely Repeated Game For each period, there is a future period, where punishment for non-cooperation is possible. Backward induction used in finite dynamic game no longer works here. Discount factor: 0< δ 1 < 1, 0< δ 2 < 1.
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    Infinitely Repeated Game Let’s conjecture a strategy profile and see under what conditions on the discount factor it is a subgame perfect equilibrium. A “Nash Reversion” strategy profile: each one will play C until someone deviates. If at least one player deviates, they enter into “punishment stage” forever. Notice that action can depend on history.
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Credible Punishment Punishment must be credible: keeping on punishing must be a subgame equilibrium.
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This note was uploaded on 09/06/2010 for the course FBE ECON2113 taught by Professor Franchsica during the Fall '09 term at HKU.

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Week 8 Lecture_Repeated_Game0 - Week 8 Infinitely Repeated...

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