An Impossibility Theorem in Repeated Games
14 Pages Posted: 28 Nov 2016
Date Written: November 24, 2016
We prove a negative result in repeated games which shows that a sizable part of the set of feasible individually rational payoffs can never be supported by strategies that are at all robust to players’ discount factors. We find the cutoff defining this region and interpret it as a limit on the ability to punish deviations when future rewards for randomization cannot be finely calibrated. Furthermore, we present a robust folk theorem to support payoffs in the complementary region with “Blackwell-Nash” strategies that remain SPNE at all greater discount factors.
Keywords: Game Theory, Repeated Games, Discounting, Robustness, Folk Theorem
JEL Classification: C73
Suggested Citation: Suggested Citation