CIRJE-F-599 "Voluntarily Separable Repeated Prisoner's Dilemma"
Author Name Fujiwara-Greve, Takako and Masahiro Okuno-Fujiwara
Date October 2008
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Remarks Revised version of CIRJE-F-415(2006); revised version subsequently published in The Review of Economic Studies, Vol.76, Issue 3 (July 2009), pp.993-1021.@
Abstract

Ordinary repeated games do not apply to real societies where one can cheat and run away from partners. We formulate a model of endogenous relationships which one can unilaterally end and start with a randomly-assigned new partner with no information flow. Focusing on two-person, two-action Prisoner's Dilemma, we show that the endogenous duration of partnerships gives rise to a significantly different evolutionary stability structure from ordinary random matching games. Monomorphic equilibria require initial trust-building, while a polymorphic equilibrium includes early cooperators than any strategy in monomorphic equilibria and is thus more efficient. This is due to nonlinearity of average payoffs.