Repeated Games with Present-Biased Preferences

30 Pages Posted: 3 Oct 2007

See all articles by Hector Chade

Hector Chade

Arizona State University (ASU) - Economics Department

Pavlo Prokopovych

Kyiv School of Economics

Lones Smith

University of Wisconsin at Madison - Department of Economics

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Abstract

We study infinitely repeated games with perfect monitoring, where players have beta-delta preferences. We compute the continuation payoff set using recursive techniques and then characterize equilibrium payoffs. We then explore the cost of the present-time bias, producing comparative statics. Unless the minimax outcome is a Nash equilibrium of the stage game, the equilibrium payoff set is not monotonic in beta or delta. Finally, we show how the equilibrium payoff set is contained in that of a repeated game with smaller discount factor.

Keywords: Hyperbolic discounting, quasi-geometric discounting, repeated games, admissibility, continuation values

JEL Classification: C73

Suggested Citation

Chade, Hector and Prokopovych, Pavlo and Smith, Lones, Repeated Games with Present-Biased Preferences. Journal of Economic Theory, Forthcoming, Available at SSRN: https://ssrn.com/abstract=996578

Hector Chade

Arizona State University (ASU) - Economics Department ( email )

PO Box 873806
Tempe, AZ 85287-3806
United States
480-965-3531 (Phone)
480-965-0748 (Fax)

Pavlo Prokopovych

Kyiv School of Economics ( email )

vul. Yakira, 13, 3d floor, suite 334
Kyiv, 04119
Ukraine

Lones Smith (Contact Author)

University of Wisconsin at Madison - Department of Economics ( email )

1180 Observatory Drive
Madison, WI 53706-1393
United States
608-263-3871 (Phone)
608-262-2033 (Fax)

HOME PAGE: http://www.lonessmith.com

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