Folk Theorems with Bounded Recall under (Almost) Perfect Monitoring, Second Version

A strategy profile in a repeated game has bounded recall L if play under the profile after two distinct histories that agree in the last L periods is equal. Mailath and Morris (2002, 2006) proved that any strict equilibrium in bounded-recall strategies of a game with full support public monitoring is robust to all perturbations of the monitoring structure towards private monitoring (the case of almost-public monitoring), while strict equilibria in unbounded-recall strategies are typically not robust. We prove the perfect-monitoring folk theorem continues to hold when attention is restricted to strategies with bounded recall and the equilibrium is essentially required to be strict.  As a consequence, the perfect monitoring folk theorem is shown to be behaviorally robust under almost-perfect almost-public monitoring. That is, the same specification of behavior continues to be an equilibrium when the monitoring is perturbed from perfect to highly-correlated private.

Download Paper

Paper Number
08-027
Year
2008
Authored by