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The Economic Research Institute, Stockholm School of Economics SSE/EFI Working Paper Series in Economics and Finance

No 437:
Prisoners' Other Dilemma

Giancarlo Spagnolo () and Matthias Blonski

Abstract: We find that contrary to common perception, cooperation as equilibrium of the infinitely repeated discounted prisoner's dilemma is in many relevant cases not very plausible, or at least questionable: for a significant subset of the payoff-discount factor parameter space cooperation equilibria are strictly risk dominated by non-cooperation (according to the Harsanyi-Selten 1988 criterion). Examples include collusion equilibria in the repeated Cournot duopoly.

Keywords: Prisoner's Dilemma; Risk dominance; Repeated games; Equilibrium selection; Cooperation; Collusion; (follow links to similar papers)

JEL-Codes: C72; (follow links to similar papers)

11 pages, February 20, 2001, Revised August 4, 2001

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