Introduction to Repeated Games in Game Theory
Repeated games have been extensively studied in game theory and have been useful in understanding a wide range of real-world scenarios. However, there are certain limitations to the applicability of repeated games in real-world scenarios that should be considered.
One of the main limitations is that in many real-world scenarios, players do not have perfect information about the game they are playing or the strategies of their opponents. This can make it difficult to achieve a Nash equilibrium, and strategies that work well in a perfectly informed setting may not work in a real-world scenario where information is imperfect. For example, in a repeated pricing game, a firm may not have perfect information about the costs of its competitors, making it difficult to determine the optimal price to set.
Another limitation is that repeated games assume that players are rational and make decisions based solely on their own payoff. In many real-world scenarios, players may have other motivations for their behavior, such as altruism, revenge, or reputation. These motivations can lead players to deviate from the optimal strategy predicted by game theory. For example, in a repeated prisoner's dilemma game, players may cooperate even though the Nash equilibrium is for both players to defect, because they value the relationship with their opponent.
Finally, repeated games assume that players have a long-term perspective and are willing to forego short-term gains for long-term benefits. In many real-world scenarios, however, players may be focused on short-term gains and be willing to take actions that are not optimal in the long run. For example, in a repeated investment game, a player may choose to invest less than the optimal amount in order to have more cash on hand in the short term.
While repeated games have many useful applications, it is important to keep these limitations in mind when applying them to real-world scenarios.
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