Wednesday, July 7, 2010
Posted by D. Daniel Sokol
Joseph E. Harrington, Jr. (Johns Hopkins - Econ) and Wei Zhao (Johns Hopkins - Econ) have an interesting new paper on Tacit Collusion in an Infinitely Repeated Prisoners’ Dilemma.
ABSTRACT: In the context of an infinitely repeated Prisoners’ Dilemma, we explore how cooperation is initiated when players communicate and coordinate through their actions. There are two types of players - patient and impatient - which are private information. An impatient type is incapable of cooperative play, while if both players are patient types - and this is common knowledge - then they can cooperate with a grim trigger strategy. We find that the longer that players have gone without cooperating, the lower is the probability that they’ll cooperate in the next period. While the probability of cooperation emerging is always positive, there is a positive probability that cooperation never occurs.