Achieving Sustainable Cooperation in Generalized Prisoner's Dilemma with Observation Errors: (Extended Abstract)

A repeated game is a formal model for analyzing cooperation in long-term relationships. The case where each player observes her opponent’s action with some observation errors (imperfect private monitoring) is difficult to analyze, and existing works show that cooperative relations can be sustainable only in ideal situations. We deal with a generic problem that can model both the prisoner’s dilemma and the team production problem. We examine a situation with an additional action that is dominated by another action. By adding this seemingly irrelevant action, players can achieve sustainable cooperative relations far beyond the ideal situations. Moreover, for a two-player case, the obtained welfare matches a theoretical upper bound.