Breakup, Secret Handshake and Neutral Stability in Repeated Prisoner's Dilemma with Option to Leave: A Note

11 Pages Posted: 21 Nov 2012

See all articles by Filip Vesely

Filip Vesely

University of Wisconsin at Milwaukee - Economics

Chun-Lei Yang

Date Written: November 21, 2012

Abstract

Option to leave is a double-edged sword in the repeated prisoner’s dilemma paradigm. We first show that too much breakup is not necessary in subgame perfect equilibrium distribution. We demonstrate on examples of well-known cooperation inducing solutions that, once an invasion with mixed behavior strategy is allowed in the definition of neutrally stable distribution, breakups on equilibrium path may invite secret-handshake type of invasions.

Keywords: neutral stability, repeated prisoner’s dilemma, secret handshake, subgame perfect equilibrium, voluntary continuation

JEL Classification: C73

Suggested Citation

Vesely, Filip and Yang, Chun-Lei, Breakup, Secret Handshake and Neutral Stability in Repeated Prisoner's Dilemma with Option to Leave: A Note (November 21, 2012). Available at SSRN: https://ssrn.com/abstract=2179126 or http://dx.doi.org/10.2139/ssrn.2179126

Filip Vesely

University of Wisconsin at Milwaukee - Economics ( email )

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