Trust is central to all transactions and yet economists rarely discuss the notion. It is treated...

We study a spectrum sharing problem in an unlicensed band where multiple sys-tems coexist and interfere with each other. Due to asymmetries and selfish system behavior, unfair and inefficient situations may arise. We investigate whether efficiency and fairness can be obtained with self-enforcing spectrum sharing rules. These rules have the advantage of not requiring a central authority that verifies compliance to the protocol. Any self-enforcing protocol must correspond to an equilibrium of a game. We first analyze the possible outcomes of a one shot game, and observe that in many cases an inefficient solution results. However, systems often coexist for long periods and a repeated game is more appropriate to model their interaction. In this repeated game the possibility of building reputations and applying punishments allows for a larger set of self-enforcing outcomes. When this set includes the optimal operating point, efficient, fair, and incentive compatible spectrum sharing becomes possible. We present examples that illustrate that in many cases the performance loss due to selfish behavior is small. We also prove that our results are tight and quantify the best achievable performance in a non-cooperative scenario.

This paper investigates cooperative play in prisoner’s dilemma games by designing an experiment to evaluate the ability of two leading theories of observed cooperation: reputation building and altruism. We analyze both one-shot and finitely repeated games to gauge the importance of these theories. We conclude that neither altruism nor reputation building alone can explain our observations. The reputation model is inconsistent with play in both one-shots and finitely repeated games while the model with altruism is unable to explain observed play in the finitely repeated

We examine the force of three types of behavioral dynamics in quantity-setting triopoly experiments: (1) mimicking the successful firm, (2) rules based on following the exemplary firm, and (3) rules based on belief learning. Theoretically, these three types of rules lead to the competitive, the collusive, and the CournotNash outcome, respectively. In the experiment we employ three information treatments, each of which is hypothesized to be conducive to the force of one of the three dynamic rules. To a large extent, the results are consistent with the hypothesized relationships between treatments, behavioral rules, and outcomes.

We introduce ecient learning equilibrium (ELE), a normative approach to learning in non-cooperative settings. In ELE, the learning algorithms themselves are required to be in equilibrium. In addition, the learning algorithms must arrive at a desired value after polynomial time, and a deviation from the prescribed ELE become irrational after polynomial time. We prove the existence of an ELE (where the desired value is the expected payoff in a Nash equilibrium) and of a Pareto-ELE (where the objective is the maximization of social surplus) in repeated games with perfect monitoring. We also show that an ELE does not always exist in the imperfect monitoring case. Finally, we discuss the extension of these results to general-sum stochastic games.

economics at the University of Chicago

A good reputation can be an effective bond for honest behavior in a community of traders if members of the community know how others have behaved in the past- even if any particular pair of traders meets only infrequently. In a large community, it would be impossibly costly for traders to be perfectly informed about each other's behavior, but there exist institutions that can restore the effectiveness of a reputation system using much less extensive information. The system of judges used to enforce commercial law before the rise of the state was such an institution, and it successfully encouraged merchants (1) to behave honestly, (2) to impose sanctions on violators, (3) to become adequately informed about how others had behaved, (4) to provide evidence against violators of the code, and (5) to pay any judgments assessed against them, even though each of these behaviors might be personally costly. How can people promote the trust necessary for efficient exchange when individuals have short run temptations to cheat? The same question arises whether the traders are legislators swapping votes, medieval merchants exchanging goods, or modern businesspeople trading promises about future deliveries. In each of these situations, one of the important ways in which individuals ensure one another's honest behavior is by establishing a continuing relationship. In the language of economics, if the relationship itself is a valuable asset that a party could lose by dishonest behavior, then the relationship serves as a bond: a trader would be unwilling to surrender this bond unless the gain from dishonest behavior was large. Variants on this basic idea are found throughout the literatures of economics

Much of economic analysis stems from the joint assumptions of rationality and individual greed. Common sense and experimental and field evidence point to the limits of this

OLIGOPOLISTIC pricing decisions—in which the choice variable is not dichotomous as in the simple Prisoner’s Dilemma but continuous—have been modeled as a Generalized Prisoner’s Dilemma (GPD) by Fader and Hauser, who sought, in the two MIT Computer Strategy Tournaments, to obtain an effective generalization of Rapoport’s Tit for Tat for the threeperson repeated game. Holland’s genetic algorithm and Axelrod’s representation of contingent strategies provide a means of generating new strategies in the computer, through machine learning, without outside submissions. The paper discusses how findings from two-person tournaments can be extended to the GPD, in particular how the author’s winning strategy in the Second MIT Competitive Strategy Tournament could be bettered. The paper provides insight into how oligopolistic pricing competitors can successfully compete, and underlines the importance of “niche ” strategies, successful

have provided excellent research assistance. I thank Stephen Machin and three referees for