Abstract
In this chapter we study whether repetition can lead to cooperation. Specifically, it is investigated which outcomes can be sustained by means of subgame perfect (or Nash ) equilibria when a game is repeated finitely or infinitely many times. The main result is the Perfect Folk Theorem, which states that, for almost all games, every outcome that is feasible and individually rational in the one-shot game can be approximated by subgame perfect equilibrium outcomes of the discounted supergame as the discount rate tends to zero, and that, for almost all games with more than one Nash equilibrium, any such outcome can be even approximated by a subgame perfect equilibrium payoff of the finitely repeated game as the number of repetitions tends to infinity.1
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