Working Paper: CEPR ID: DP4793
Authors: George J. Mailath; Volker Nocke; Lucy White
Abstract: In repeated normal-form games, simple penal codes (Abreu 1986, 1988) permit an elegant characterization of the set of subgame-perfect outcomes. We show that the logic of simple penal codes fails in repeated extensive-form games. We provide two examples illustrating that a subgame-perfect outcome may be supported only by a profile with the property that the continuation play after a deviation is tailored not only to the identity of the deviator, but also to the nature of the deviation.
Keywords: optimal punishment; repeated extensive game; simple penal code; subgame perfect equilibrium
JEL Codes: C70; C72; C73
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| simple penal codes in repeated normal form games (C73) | support subgame perfect equilibria (C73) |
| failure of simple penal codes in repeated extensive form games (C73) | necessity of more complex strategies (C73) |
| specific actions of the deviating player (Z22) | tailored responses (D79) |
| type of deviation (C46) | influences punishment and subsequent equilibrium outcomes (C73) |