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A folk theorem in infinitely repeated prisoner's dilemma with small observation cost

Hino, Yoshifumi (2018): A folk theorem in infinitely repeated prisoner's dilemma with small observation cost.

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Abstract

We consider an infinitely repeated prisoner's dilemma under costly monitoring. If a player observes his opponent, then he pays an observation cost and knows the action chosen by his opponent. If a player does not observe his opponent, he cannot obtain any information about his opponent's action. Furthermore, no player can statistically identify the observational decision of his opponent. We prove efficiency without any signals. Then, we extend the idea with a public randomization device and we present a folk theorem for a sufficiently small observation cost when players are sufficiently patient.

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