Dynamic Stability in Repeated Games
Banco de Espana
August 18, 2006
Banco de Espana Research Paper No. WP-0618
A concept of dynamic stability in infinitely repeated games with discounting is presented. For this purpose, one modification of the available theory is needed: we need to relax the assumption that the game starts in a given period. Under this new framework, we propose stable strategies such that a folk theorem with an additional stability requirement still holds. Under these strategies, convergence to the long run outcome is achieved in a finite number of periods, no matter what actions or deviations have been played in the past. Hence, we suggest a way in which a player can build up his reputation after a deviation.
Number of Pages in PDF File: 26
Keywords: Repeated Games, Stability, Stable Strategies
JEL Classification: C70, C72working papers series
Date posted: August 22, 2006
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