Testing threats in repeated games

Ran Spiegler*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

5 Scopus citations

Abstract

Under most game-theoretic solution concepts, equilibrium beliefs are justified by off-equilibrium events. I propose an equilibrium concept for infinitely repeated games, called "Nash Equilibrium with Tests" (NEWT), according to which players can only justify their equilibrium beliefs with events that take place on the equilibrium path itself. In NEWT, players test every threat that rationalizes a future non-myopic action that they take. The tests are an integral part of equilibrium behavior. Characterization of equilibrium outcomes departs from the classical "folk theorems". The concept provides new insights into the impact of self-enforcement norms, such as reciprocity, on long-run cooperation.

Original languageEnglish
Pages (from-to)214-235
Number of pages22
JournalJournal of Economic Theory
Volume121
Issue number2
DOIs
StatePublished - Apr 2005

Keywords

  • Justifiability
  • Reciprocity
  • Repeated games
  • Solution concepts
  • Threat testing
  • Trigger strategies

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