Open AccessA folk theorem for stochastic games with infrequent state changes
Author(s) -
Pęski Marcin,
Wiseman Thomas
Publication year - 2015
Publication title -
theoretical economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 4.404
H-Index - 32
eISSN - 1555-7561
pISSN - 1933-6837
DOI - 10.3982/te1512
Subject(s) - folk theorem , stochastic game , discounting , mathematical economics , imperfect , repeated game , set (abstract data type) , state (computer science) , perfect information , mathematics , economics , equilibrium selection , computer science , game theory , algorithm , linguistics , philosophy , finance , programming language
We characterize perfect public equilibrium payoffs in dynamic stochastic games in the case where the length of the period shrinks, but players' rate of time discounting and the transition rate between states remain fixed. We present a meaningful definition of the feasible and individually rational payoff sets for this environment, and we prove a folk theorem under imperfect monitoring. Our setting differs significantly from the case considered in previous literature (Dutta (1995), Fudenberg and Yamamoto (2011), and Hörner et al. (2011)) where players become very patient. In particular, the set of equilibrium payoffs typically depends on the initial state.