Abstract
We prove the perfect-monitoring folk theorem continues to hold when attention is restricted to strategies with bounded recall and the equilibrium is essentially required to be strict. As a consequence, the perfect monitoring folk theorem is shown to be behaviorally robust under almost-perfect almost-public monitoring. That is, the same specification of behavior continues to be an equilibrium when the monitoring is perturbed from perfect to highly-correlated private.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 174-192 |
| Number of pages | 19 |
| Journal | Games and Economic Behavior |
| Volume | 71 |
| Issue number | 1 |
| DOIs | |
| State | Published - Jan 2011 |
Funding
✩ We thank the National Science Foundation, grants #SES-0648780 (Mailath) and #SES-0453061 (Olszewski), for financial support. The first draft of this paper was written in spring 2007 while the first author was on the faculty at and the second author was visiting Yale University. Both thank the Cowles Foundation and the Department of Economics at Yale University for their hospitality. We thank the audience at the Conference in Honor of John Nash’s 80th Birthday, June 2008, for helpful comments, and Hamid Sabourian for an extremely useful conversation and for sharing Barlo et al. (2008) with us. We also thank the associate editor and referees for exceptionally helpful and perceptive comments. * Corresponding author. E-mail addresses: [email protected] (G.J. Mailath), [email protected] (W. Olszewski). 1 Recent work (Ely and Välimäki, 2002; Piccione, 2002; Ely et al., 2005) has found so-called “belief-free” equilibria where this is not true. However, these equilibria rely on significant randomization, and it is not clear if such equilibria can be purified (Bhaskar et al., 2008).
Keywords
- Bounded recall strategies
- Folk theorem
- Imperfect monitoring
- Repeated games
ASJC Scopus subject areas
- Economics and Econometrics
- Finance