Breakup, Secret Handshake and Neutral Stability in Repeated Prisoner's Dilemma with Option to Leave: A Note
11 Pages Posted: 21 Nov 2012
Date Written: November 21, 2012
Option to leave is a double-edged sword in the repeated prisoner’s dilemma paradigm. We first show that too much breakup is not necessary in subgame perfect equilibrium distribution. We demonstrate on examples of well-known cooperation inducing solutions that, once an invasion with mixed behavior strategy is allowed in the definition of neutrally stable distribution, breakups on equilibrium path may invite secret-handshake type of invasions.
Keywords: neutral stability, repeated prisoner’s dilemma, secret handshake, subgame perfect equilibrium, voluntary continuation
JEL Classification: C73
Suggested Citation: Suggested Citation