Lesson 1
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In business or personal relationships, promises and threats of good and bad behavior tomorrow may provide good incentives for good behavior today, but, to work, these promises and threats must be credible. In particular, they must come from equilibrium behavior tomorrow, and hence form part of a subgame perfect equilibrium today. We discuss what this means for the personal relationships of seniors in the class. Then we discuss less draconian punishments, and find there is a trade off between the severity of punishments and the required probability that relationships will endure. Polak, Ben. ECON 159, Game Theory, Fall 2007. Yale OpenCourseWare: Economics, Accessed 03/10/14 http://oyc.yale.edu/economics/econ-159/lecture-22 License: Creative Commons BY-NC-SA

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