On Supergames and Folk Theorems: A Conceptual Discussion

Abstract

That strategic rivalry in a multiperiod decision situation might be quite different from one day affairs is well accepted in game theory. Repeating the game over and over allows players to repond to others’ actions and forces each player to visualize the reactions of his opponents. Hence, if a game is repeated an infinite number of times, the threat of retaliation becomes an enforcement mechanism which assures the cooperative behavior of the agents. This is, in a very crude and simple fashion, the message of the Folk Theorem.

We are grateful to W. Böge, E. v. Damme, J. Friedman, B. Kalkofen and R. Selten for critical comments. The usual disclaimer applies.