COMPENSATION PRINCIPLE IN REPEATED GAMES

A behavioral refinement of subgame perfect equilibria for repeated gam es is proposed. A temporal deviation-free equilibrium requires that an equilibrium should not assign an action profile from which a unilater al deviation can make all the players better off at that stage. We cha racterize the set of equilibrium payoffs and give a simple algorithm t o find it. An extension of it, compensating equilibrium, requires that an equilibrium should leave no room for the possibility that a multis hot unilateral deviation can make all the players better off. We parti ally characterize the equilibrium. Its relation to other refinement co ncepts is also discussed. (C) 1996 Academic Press, Inc.