Reputation versus social learning

A folk theorem of game theory illustrates that strategic use of reputation can drastically alter the equilibrium play of an isolated group of n-player s engaged in a finitely repeated game. We show that this folk theorem may f ail in social settings where many groups of n-players play the game sequent ially. The ability to strategically use reputation dies out over time due t o players' opportunity to observe the play of earlier groups. This phenomen on is demonstrated in a model of Bayesian recurring games by using old and new techniques from the rational learning literature combined with a notion of purification. Classification Numbers: C72, C73, D83. (C) 1999 Academic Press.