Plausible Cooperation, Third Version
There is a large repeated games literature illustrating how future interactions provide incentives for cooperation. Much of the earlier literature assumes public monitoring: players always observe precisely the same thing. Departures from public monitoring to private monitoring that incorporate differences in players’ observations may dramatically complicate coordination and the provision of incentives, with the consequence that equilibria with private monitoring often seem unrealistically complex. We set out a model in which players accomplish cooperation in an intuitively plausible fashion. Players process information via a mental system — a set of psychological states and a transition function between states depending on observations. Players restrict attention to a relatively small set of simple strategies, and consequently, might learn which perform well.