folk theorem

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The claim that in an infinitely repeated game any outcome in which each player obtains at least their security pay-off can be an equilibrium (in the sense that there are strategies yielding those pay-offs that constitute a Nash equilibrium). The name of ‘folk theorem’ was adopted because the result was accepted as true by the community of game theorists before any formal proof was provided, in the way that a folk story is accepted as reporting history without evidence of truth.

Subjects: Economics.

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