An Algorithm for Two Player Repeated Games with Perfect Monitoring

26 Pages Posted: 24 Oct 2011

See all articles by Dilip Abreu

Dilip Abreu

Princeton University - Department of Economics

Yuliy Sannikov

Princeton University

Date Written: October 19, 2011

Abstract

Consider repeated two-player games with perfect information and discounting. We provide an algorithm that computes the set of payoff pairs V* of all pure strategy subgame perfect equilibria with public randomization. The algorithm provides significant efficiency gains over the existing implementations of the algorithm from Abreu, Pearce and Stacchetti (1990). These efficiency gains arise from a better understanding of the manner in which extreme points of the equilibrium payoff set are generated. An important theoretical implication of our algorithm is that the set of extreme points E of V* is finite. Indeed, |E| ≤ 3|A|, where A is the set of action profiles of the stage game.

Suggested Citation

Abreu, Dilip and Sannikov, Yuliy, An Algorithm for Two Player Repeated Games with Perfect Monitoring (October 19, 2011). Economic Theory Center Working Paper No. 26-2011, Available at SSRN: https://ssrn.com/abstract=1948512 or http://dx.doi.org/10.2139/ssrn.1948512

Dilip Abreu (Contact Author)

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

Yuliy Sannikov

Princeton University ( email )

22 Chambers Street
Princeton, NJ 08544-0708
United States

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