finitely repeated game real life example

Professor Ben Polak: So last time we were focusing on repeated interaction and that’s what we’re going to continue with today. Repeated Interaction: The Grim Trigger Strategy in the Prisoner’s Dilemma (Continued) Game Theory ECON 159 - Lecture 22 - Repeated Games: Cheating, Punishment, and OutsourcingĬhapter 1. We apply this idea to a moral-hazard problem that arises with outsourcing, and find that the high wage premiums found in foreign sectors of emerging markets may be reduced as these relationships become more stable. Then we discuss less draconian punishments, and find there is a trade off between the severity of punishments and the required probability that relationships will endure. We discuss what this means for the personal relationships of seniors in the class. We find that the grim strategy forms such an equilibrium provided that we are patient and the game has a high probability of continuing. In particular, they must come from equilibrium behavior tomorrow, and hence form part of a subgame perfect equilibrium today. In business or personal relationships, promises and threats of good and bad behavior tomorrow may provide good incentives for good behavior today, but, to work, these promises and threats must be credible. Lecture 22 - Repeated Games: Cheating, Punishment, and Outsourcing Overview

Finitely repeated game real life example