Lecture 21 - Repeated Games: Cooperation vs. the End Game

We discuss repeated games, aiming to unpack the intuition that the
promise of rewards and the threat of punishment in the future of a
relationship can provide incentives for good behavior today. In
class, we play prisoners’ dilemma twice and three times, but this
fails to sustain cooperation. The problem is that, in the last
stage, since there is then is future, there is no incentive to
cooperate, and hence the incentives unravel from the back. We
related this to the real-world problems of a lame duck leader and
of maintaining incentives for those close to retirement. But it is
possible to sustain good behavior in early stages of some repeated
games (even if they are only played a few times) provided the stage
games have two or more equilibria to be used as rewards and
punishments. This may require us to play bad equilibria tomorrow.
We relate this to the trade off between ex ante and ex post
efficiency in the law. Finally, we play a game in which the players
do not know when the game