For an infinitely repeated game promising A per period with continuing cooperation,B for the one period gain from cheating and C per period for the non-cooperative solution (B A C)will have a subgame perfect Nash equilibrium in trigger strategies providing:

Question

For an infinitely repeated game promising A per period with continuing cooperation,B for the one period gain from cheating and C per period for the non-cooperative solution (B > A > C)will have a subgame perfect Nash equilibrium in trigger strategies providing:

Quizplus · Accepted Answer

A subgame perfect Nash equilibrium in trigger strategies means that if one player deviates from the cooperative solution, the other player will punish by also deviating to the non-cooperative solution for the remainder of the game. In this case, the one period gain from cheating (B) is less than the promised gain from continuing cooperation (A), so players have an incentive to cooperate in the long run. Therefore, the equilibrium will be in trigger strategies where each player cooperates as long as the other player does, and deviates to the non-cooperative solution if the other player cheats. The resulting payoff for each player will be A per period.

For an Infinitely Repeated Game Promising a Per Period with Continuing