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A Folk Theorem for Stochastic Games with Infrequent State Changes, working paper

By Marcin Pęski and Thomas Wiseman


Dutta (1995) studies dynamic stochastic games with finite states, and proves a folk theorem that holds as players become very patient (so that players discount vanishingly little both the time until the next period and the expected time until the next state transition). Fudenberg and Yamamoto (2011) and Hörner, Sugaya, Takahashi, and Vieille (2011) extend that analysis to the case of imperfect moitoring. Here, we consider the case where the length of a period shrinks, but players ’ rate of time discounting remains fixed. In this case, the discounting between periods shrinks to zero in the limit, but the discounting of the expected time until a state transition does not. Our main result is a folk theorem that holds under Fudenberg, Levine, and Maskin’s (1994) monitoring conditions. We do not require that the stochastic game be irreducible

Year: 2012
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