"Lec 22 - Repeated games: cheating, punishment, and outsourcing" Game Theory (ECON 159) 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. In particular, they must come from equilibrium behavior tomorrow, and hence form part of a subgame perfect equilibrium today. We find that the grim strategy forms such an equilibrium provided that we are patient and the game has a high probability of continuing. We discuss what this means for the personal relationships of seniors in the class. 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 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. 00:00 - Chapter 1. Repeated Interaction: The Grim Trigger Strategy in the Prisoner's Dilemma (Continued) 29:21 - Chapter 2. The Grim Trigger Strategy: Generalization and Real World Examples 37:56 - Chapter 3. Cooperation in Repeated Interactions: The "One Period Punishment" Strategy 53:09 - Chapter 4. Cooperation in Repeated Interactions: Repeated Moral Hazard 01:13:53 - Chapter 5. Cooperation in Repeated Interactions: Conclusions Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses This course was recorded in Fall 2007.
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Tags: backward induction cooperation discounting Grim Trigger strategy infinitely repeated games Prisoner's dilemma wage game
Uploaded by: yalegametheory ( Send Message ) on 02-09-2012.
Duration: 75m 47s
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Lec 1 - Introduction: five first lessons
Lec 2 - Putting yourselves into other people's shoes
Lec 3 - Iterative deletion and the median-voter theorem
Lec 4 - Best responses in soccer and business partnerships
Lec 5 - Nash equilibrium: bad fashion and bank runs
Lec 6 - Nash equilibrium: dating and Cournot
Lec 7 - Nash equilibrium: shopping, standing and voting on a line
Lec 8 - Nash equilibrium: location, segregation and randomization
Lec 9 - Mixed strategies in theory and tennis
Lec 10 - Mixed strategies in baseball, dating and paying your taxes
Lec 11 - Evolutionary stability: cooperation, mutation, and equilibrium
Lec 12 - Evolutionary stability: social convention, aggression, and cycles
Lec 13 - Sequential games: moral hazard, incentives, and hungry lions
Lec 14 - Backward induction: commitment, spies, and first-mover advantages
Lec 15 - Backward induction: chess, strategies, and credible threats
Lec 16 - Backward induction: reputation and duels
Lec 17 - Backward induction: ultimatums and bargaining
Lec 18 - Imperfect information: information sets and sub-game perfection
Lec 19 - Subgame perfect equilibrium: matchmaking and strategic investments
Lec 20 - Subgame perfect equilibrium: wars of attrition
Lec 21 - Repeated games: cooperation vs. the end game
Lec 23 - Asymmetric information: silence, signaling and suffering education
Lec 24- Asymmetric information: auctions and the winner's curse