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GAME THEORY

Repeated games
AN EXAMPLE OF COLLUSION

The Newyork Post


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REPEATED
GAMES
Revisit prisoners’ dilemma
• Finite number of moves
• Infinite number of moves
TYPES OF REPITITIVE GAMES
 Finite number of repetitions
 Does NE hold?

 Infinite number of repetitions and contingent plans


 Penalties
 Trigger strategies: grim and tit-for-tat policies
 Leadership
EXAMPLE
P2
20 26
20 288, 288 360, 216
P1
26 216, 360 324, 324
GRIM-TRIGGER AND TIT-FOR-
TAT STRATEGIES
GRIM-STRATEGY TIT-FOR-TAT
• Cooperate by • Cooperate
C C C C
default the first time
• If the other C C • Play the C C
player C C strategy C C
defects, then played by
defect C D the opponent C D
forever D C in all D D
D D subsequent D C
rounds
D D C C
D D C C
GRIM-TRIGGER AND TIT-FOR-
TAT STRATEGIES
GRIM-STRATEGY Payoffs TIT-FOR-TAT Payoffs
C C 324 324 C C 324 324
C C 324 324 C C 324 324
C C 324 324 C C 324 324
C D 216 360 C D 216 360
D C 360 216 D D 288 288
D D 288 288 D C 360 216
D D 288 288 C C 324 324
D D 288 288 C C 324 324
2412 2412 2484 2484
AUDI
High Low EXAMPLE:
High 4, 4 6, 3
BMW AD WARS
Low 3, 6 5, 5
VALUE OF TIME IN
REPEATED GAMES
 Players may decide to risk punishments in the later time periods, if the
present payoff from defection is higher than the discounted cooperative
payoff from future.
 Solve the two problems discussed in the class by factoring in time value of
money: For a given rate of interest, say 10% per period, find out after how
many periods of time would you defect when the opponent follows a grim
trigger strategy. Carry out a similar analysis for tit-for-tat strategy.

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