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Forward-Looking Principle In Repeated Games

Author

Listed:
  • MIGUEL ARAMENDIA

    (BRiDGE group, Economia Aplicada IV, Universidad del Pais Vasco, Bilbao 48015, Spain)

  • QUAN WEN

    (Department of Economics, University of Washington, Box 353330, Seattle, WA 98195-3330, USA)

Abstract

In repeated games, equilibria requiring threats of punishment may be implausible if punishing a deviator hurts all the others. When all the punishers suffer from carrying out a punishment in the continuation, it would be in their best interest to forgive the deviation. Taking this line of reasoning into consideration, we introduce the forward-looking principle for subgame perfect equilibrium such that there must be, at least, one punisher who benefits in the continuation by carrying out the punishment. We show that this principle generally reduces payoffs that may arise from equilibrium. We characterize the payoffs that can be supported by subgame perfect equilibrium with forward-looking principle.

Suggested Citation

  • Miguel Aramendia & Quan Wen, 2014. "Forward-Looking Principle In Repeated Games," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 16(04), pages 1-16.
    • Handle: RePEc:wsi:igtrxx:v:16:y:2014:i:04:n:s021919891450011x
    DOI: 10.1142/S021919891450011X
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    References listed on IDEAS

    as
    1. Mailath, George J. & Samuelson, Larry, 2006. "Repeated Games and Reputations: Long-Run Relationships," OUP Catalogue, Oxford University Press, number 9780195300796.
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    More about this item

    Keywords

    Repeated games; forward-looking; renegotiation-proof; 91A10; 91A25;
    All these keywords.

    JEL classification:

    • B4 - Schools of Economic Thought and Methodology - - Economic Methodology
    • C0 - Mathematical and Quantitative Methods - - General
    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • D7 - Microeconomics - - Analysis of Collective Decision-Making
    • M2 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics

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