Cooperation by Indirect Revelation Through Strategic Behavior

The paper deals with a one-shot prisoners' dilemma when the players have an option to go to court but cannot verify their testimonies. To solve the problem a second stage is added to a game. At the first stage the players are involved in the prisoners' dilemma and at the second stage they play another game in which their actions are verifiable. In such a setup the information about the actions chosen at the prisoners' dilemma stage can be revealed through strategic behavior of the players during the second stage. A mechanism for such revelation in the extended game is described. It provides an existence of a unique sequential equilibrium, which may be obtained by an interative elimination of dominated strategies and has a number of desirable properties.

Expected Value

A procedure for decision-making under risk is developed and axiomatized. It provides another explanation for the Allais paradox as well as justification for some other preference patterns that can not be represented by the expected utility model, but it includes expected utility representation fo preferences as a particular case. The idea of the procedure is that evaluation of the lotteries takes two steps. First, a decision maker classifies a lottery as a "bad," "good" or "medium" one. Then comparing the lotteries the decision maker uses lexicographic ordering between the classes and expected utility value (with possibly different utility scales for different classes) within each of the three categories. The paper contains comparison of the suggested procedure with several other non-expected utility models. Many preference patterns that motivated the other models can be explained within the suggested procdedure. Key Words: threshold, expected utility, Allais paradox.