Perfect Sequential Reciprocity and Dynamic Consistency

Abstract

Dufwenberg and Kirchsteiger�s (2004) extends Rabin�s (1993) theory of reciprocity in a dynamic sense, introducing a rule of revision for player�s beliefs. The Sequential Reciprocity Equilibrium [SRE] they define can be dynamically inconsistent. In this article it is argued that such dynamic inconsistency is not intrinsically related to issues of reciprocity, but rather to the particular way the beliefs�updating process is modeled. A refinement of the SRE, which is both dynamically consistent and, it is argued, more sound to assumptions usually made in the literature of information economics and philosophy, is proposed.Reciprocity;� Dynamic Consistency