Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 437: Prisoners' Other Dilemma

Giancarlo Spagnolo () and Matthias Blonski
Additional contact information
Giancarlo Spagnolo: S.S.E., University of Mannheim, and CEPR, Postal: Stockholm School of Economics, P.O. Box 6501, S-113 83 Stockholm, Sweden
Matthias Blonski: Dept. of Economics, University of Mannheim, Postal: Seminargebaude A5, D-68131 Mannheim, Germany

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

JEL-codes: C72

11 pages, First version: February 20, 2001. Revised: August 4, 2001. Earlier revisions: February 20, 2001, February 27, 2001, April 19, 2001.

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