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Testing threats in repeated games

Spiegler, R; (2005) Testing threats in repeated games. J ECON THEORY , 121 (2) 214 - 235. 10.1016/j.jet.2004.04.003. Green open access

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Abstract

Under most game-theoretic solution concepts, equilibrium beliefs are justified by off-equilibrium events. I propose an equilibrium concept for infinitely repeated games, called "Nash Equilibrium with Tests" (NEWT), according to which players can only justify their equilibrium beliefs with events that take place on the equilibrium path itself. In NEWT, players test every threat that rationalizes a future non-myopic action that they take. The tests are an integral part of equilibrium behavior. Characterization of equilibrium outcomes departs from the classical "folk theorems". The concept provides new insights into the impact of self-enforcement norms, such as reciprocity, on long-run cooperation. (c) 2004 Elsevier Inc. All rights reserved.

Type: Article
Title: Testing threats in repeated games
Open access status: An open access version is available from UCL Discovery
DOI: 10.1016/j.jet.2004.04.003
Keywords: solution concepts, repeated games, threat testing, justifiability, reciprocity, trigger strategies, EQUILIBRIUM
UCL classification: UCL
UCL > Provost and Vice Provost Offices > UCL SLASH
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/17307
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