This lecture explains how credible threats of future punishment can lead to good outcomes in situations that beg for uncooperative behavior.
Takeaway Points
- If a stage game with multiple equilibria—some of which are inefficient—follows a prisoner’s dilemma, players can cooperate in the prisoner’s dilemma in a subgame perfect equilibrium.
- Such an equilibrium requires the use of cooperation contingent strategies. Under these strategies, the players play the strategies that lead to an efficient outcome in the second stage if and only if both players have cooperated during the prisoner’s dilemma.
