Month and Year Daily News Price Price January 1994 40¢ 40¢ February 1994 50¢ 40¢
March 1994 25¢ (in Staten Island) 40¢
July 1994 50¢ 50¢
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.