Limited foresight may force cooperation

This paper considers discounted repeated games with boundedly rational play ers. In each period, player i chooses his current action on the basis of hi s forecast about the forthcoming n(i) action profiles; his assessment of th e payoffs he will obtain next depends on his state of mind, which is non-de terministic. A limited forecast equilibrium is such that after every histor y the limited horizon forecasts formed by the players are correct. The set of all limited forecast equilibria is characterized and constructed. Applic ation to the repeated prisoner's dilemma shows that limited foresight may s ometimes induce purely cooperative paths while purely non-cooperative paths cannot arise.