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Robust Predictions in Infinite-Horizon Games--an Unrefinable Folk Theorem

Author(s)
Weinstein, Jonathan; Yildiz, Muhamet
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Abstract
We show that in any game that is continuous at infinity, if a plan of action ai is played by a type ti in a Bayesian Nash equilibrium, then there are perturbations of ti for which ai is the only rationalizable plan and whose unique rationalizable belief regarding the play of the game is arbitrarily close to the equilibrium belief of ti. As an application to repeated games, we prove an unrefinable folk theorem: any individually rational and feasible payoff is the unique rationalizable payoff vector for some perturbed type profile. This is true even if perturbed types are restricted to believe that the repeated-game payoff structure and the discount factor are common knowledge.
Date issued
2012-07
URI
http://hdl.handle.net/1721.1/82897
Department
Massachusetts Institute of Technology. Department of Economics
Journal
Review of Economic Studies
Publisher
Oxford University Press
Citation
Weinstein, J., and M. Yildiz. “Robust Predictions in Infinite-Horizon Games--an Unrefinable Folk Theorem.” The Review of Economic Studies 80, no. 1 (February 7, 2013): 365-394.
Version: Author's final manuscript
ISSN
0034-6527
1467-937X

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