Prisoners' Other Dilemma

J.W.Goethe University, Frankfurt, Economics Working Paper

24 Pages Posted: 9 Aug 2001 Last revised: 1 Oct 2008

See all articles by Matthias Blonski

Matthias Blonski

J.W. Goethe University

Giancarlo Spagnolo

Stockholm School of Economics (SITE); Centre for Economic Policy Research (CEPR); University of Rome 'Tor Vergata'; EIEF

Multiple version iconThere are 2 versions of this paper

Date Written: December 2004

Abstract

We find that - contrary to common perception - co-operation as equilibrium of the infinitely repeated discounted Prisoner's Dilemma is in many relevant cases not very plausible: For a significant subset of the payoff-discount factor parameter space, all co-operation equilibria are strictly risk dominated (in the sense of Harsanyi and Selten, 1988) by defection. We derive an easy-to-calculate critical level for the discount factor below which this happens, and argue it is a better measure for the "likelihood" of co-operation than the critical level at which co-operation is supportable in equilibrium. The results apply to other games sharing the strategic features of the repeated Prisoner's Dilemma, such as models of implicit/relational contracts, common pools and public good provision. We illustrate our main result for collusion equilibria in the repeated Cournot duopoly.

Keywords: Risk Dominance, repeated games, Prisoner's Dilemma, relational contracts

JEL Classification: C73

Suggested Citation

Blonski, Matthias and Spagnolo, Giancarlo, Prisoners' Other Dilemma (December 2004). J.W.Goethe University, Frankfurt, Economics Working Paper, Available at SSRN: https://ssrn.com/abstract=278872 or http://dx.doi.org/10.2139/ssrn.278872

Matthias Blonski (Contact Author)

J.W. Goethe University ( email )

Economics Department
Frankfurt am Main, 60054
Germany

Giancarlo Spagnolo

Stockholm School of Economics (SITE) ( email )

P.O. Box 6501
Stockholm
Sweden

HOME PAGE: http://https://sites.google.com/site/giancarlospagnoloshomepage/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

University of Rome 'Tor Vergata' ( email )

Faculty of Economics - DEI
Via Columbia 2
Rome, RM 00133
Italy

EIEF ( email )

Via Due Macelli, 73
Rome, 00187
Italy

HOME PAGE: http://WWW.EIEF.IT

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
225
Abstract Views
1,566
rank
136,215
PlumX Metrics