Education For All

www.edforall.net

Text size
  • Increase font size
  • Default font size
  • Decrease font size

Lectures (Video)

Course Home

Game Theory - Lecture 22

Get the Flash Player to view video.
Lecture 22 - Repeated games: cheating, punishment, and outsourcing

In business or personal relationships, promises and threats of good and bad behavior tomorrow may provide good incentives for good behavior today, but, to work, these promises and threats must be credible. In particular, they must come from equilibrium behavior tomorrow, and hence form part of a subgame perfect equilibrium today. We find that the grim strategy forms such an equilibrium provided that we are patient and the game has a high probability of continuing. We discuss what this means for the personal relationships of seniors in the class. Then we discuss less draconian punishments, and find there is a trade off between the severity of punishments and the required probability that relationships will endure. We apply this idea to a moral-hazard problem that arises with outsourcing, and find that the high wage premiums found in foreign sectors of emerging markets may be reduced as these relationships become more stable.

Prof. Ben Polak
ECON 159 Game Theory, Fall 2007
(Yale University: Open Yale)
http://oyc.yale.edu
Date accessed: 2009-01-15
License: Creative Commons BY-NC-SA

Lecture Material

To view the lecture material accompanying this lecture in a new window, please click the button below. If necessary, use the vertical or horizontal scrollbar in the new window to view more of the material or you can resize the window.

To download the above lecture material use this link. (Right-click and select Save Target As or Save Link As.)

Supplementary lecture material is listed below.

1. Problem Set 10



 

Translate

Chinese (Simplified) French German Italian Japanese Korean Portuguese Russian Spanish
More educational resources: