Pareto Optimality and Optimistic Stability in Repeated Extensive Form Games

Author: Tadelis S.  

Publisher: Academic Press

ISSN: 0022-0531

Source: Journal of Economic Theory, Vol.69, Iss.2, 1996-05, pp. : 470-489

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Abstract

This paper extends the applications of the theory of social situations . In particular, we investigate characteristics of optimistic stable standards of behavior (OSSBs) in repeated extensive form games. The OSSB is interesting for two reasons: First, it refines subgame perfect equilibrium. Second, it strongly relates to von Neumann-Morgenstern abstract stable sets . We characterize the nondiscriminating OSSB and derive a sufficient condition for the existence of a unique nondiscriminating OSSB-a condition that is independent of the discount factor, delta . Our main result shows that the nondiscriminating OSSB selects Pareto optimal subgame perfect equilibrium paths in a class of repeated games. Journal of Economic Literature Classification Numbers: C70, D70.