Lecture 21 26 Nov 07 Repeated Interaction ; Cooperation Lesson’ In ongoing relationships, the promise of future cowards and the theeat of foture Punishments may Sometimes provide | tAcen fives for good behavior today. Bat for this to work, w helps te have a future ! shame duck = ceticement + econemics = tad effects feietensips 8 defect coop << finite game ~ is A\lp Als Die dye o|>D clo c]b 6 coop Ke Howevtt, even a Finite game has Fome hope. Let seean example... 77 Open Yale phece hope oF cooperation? > ¢ ne A\at 0,5 | 0,0 5,0 | 1! 0,0 ome) c}] 0,0 | 20 | ° we would lke to sustain (A,A) Bur (AA) is not NE in one-shot game The NE ace (8,8) (6,0) also, egere ate some mized NE. But thsis okey meses for news 77, "cooperation" We Can't sustain CA,A) in period 2 But consider the strategy ¢ “ploy A, then ( pley Cif A.A) was played pley B othecwise 0 Is this a SPE? In period 2fafter (A.A) ths stateyy induces (¢,¢) v after the other choices in period 2, this stateyy indvees (8,8) | btene 4 9, ateaite,(~ A ot, . 3 Ty ay as) wood da mele a ration to defect] [yale of ceward ~ valve of pandine fades J ~ (ts —— 5-4 Lesson: IFa'stagegame” hos more than one NE thea we mey be able to USE the prospect of Pleting different equilria tomorrow to provide incentives (rewards and punishnents for coopersting today. Thee ay be pobon of angen]2 «continued from above 27 ~Goakroptey ot trade ex post CFicency play thea play C if noone hes played D ply D otherwise “Grim Tigger Strategy “ temptation ey & (walve afeenaal ~ valve of penishvead tomorrow 3-2 ¢ O 7] where f< Py 7 c ee value of game may end Oe) Oe wt J (9) "farewee™ Mt§ae GAG 2... Open Yale courses