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Repeated games are scenarios where the same game is played multiple times by the same participants. These games are fundamental in understanding how decision-making processes evolve over time.

Finitely Repeated Games: These games occur a specific number of times.

Consider two software firms that are in competition, releasing updates to their software every quarter. Each quarter, these firms must decide on their strategic approach: they can either invest heavily in developing innovative new features or opt to cut costs by implementing only minor fixes and updates.

Strategic Adjustments:

Final Round Strategy: As the final quarter approaches, firms are motivated to cut costs significantly to maximize profits.

Backward Induction: Knowing the final quarter is near, firms anticipate minimal innovation in the final quarter, leading them to reduce investments earlier, potentially starting in the previous quarters.

Long-term Impact: This knowledge pushes the firms to adopt cost-saving strategies ever earlier quarters. Ultimately, both firms adopt cost-saving strategies from the start, despite the potential for higher collective profits through sustained innovation.

By studying repeated games, one gains insight into the dynamic evolution of strategic decision-making, as players of the game strike the balance between competition and cooperation, as well as the impact of game length on player behavior.

Tags

Finitely Repeated GamesDecision makingCompetitionStrategic ApproachSoftware FirmsInvestment StrategiesCost cuttingFinal Round StrategyBackward InductionLong term ImpactStrategic AdjustmentsPlayer BehaviorCooperationInnovation

From Chapter 18:

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18.15 : Finitely Repeated Games

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18.1 : Introduction to Game Theory

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18.2 : Cooperative vs. Non-Cooperative Games

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18.3 : Player and Strategies

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18.4 : Zero-Sum and Non-Zero-Sum Game

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18.5 : Payoffs

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18.6 : Dominant and Dominated Strategies

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18.7 : Equilibrium in Dominant Strategies

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18.8 : Prisoner's Dilemma I

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18.9 : Prisoner's Dilemma II

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18.10 : Nash Equilibrium in One-Period Games

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18.11 : Multiple Equilibria

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18.12 : Mixed Strategies

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18.13 : The Maximin Strategy I

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18.14 : The Maximin Strategy II

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