Examples of repeated destructive behavior abound throughout the history of human societies. This paper examines the role of social memory — a society’s vicarious beliefs about the past — in creating and perpetuating destructive conflicts. We examine whether such behavior is consistent with the theory of rational strategic behavior. We analyze an infinite-horizon model in which two countries fac...

a r t i c l e i n f o a b s t r a c t JEL classification: C72 C79 D40 D43 D44 Keywords: Algorithmic mechanism design Worst case scenario equilibrium analysis Frugality Minimum cost spanning tree problem Price of imperfect competition A buyer procures a network to span a given set of nodes; each seller bids to supply certain edges, then the buyer purchases a minimal cost spanning tree. An effici...

The introduction of a small amount of bounded rationality into a model sometimes has little effect, and sometimes has a dramatic impact on predicted behavior. We call a model robust to bounded rationality if small deviations from rationality result only in small changes in the equilibrium set. We also say that a model is structurally stable if the equilibrium set (given fully rational agents) v...

We find an economic rationale for the common sense answer to the question in our title — courts should not always enforce what the contracting parties write. We describe and analyze a contractual environment that allows a role for an active court. An active court can improve on the outcome that the parties would achieve without it. The institutional role of the court is to maximize the parties’...

We show that for any discount factor, there is a natural number M such that all subgame perfect outcomes of the discounted repeated prisoners’ dilemma (pure strategies) can be obtained by subgame perfect strategies with the following property: current play depends only on the number of the time-index and on the history of the last M periods. This strong result, however, does not suffice to esta...

This paper studies the bilateral contracting environment where multiple principals negotiate contracts with multiple agents independently. It is shown that equilibrium allocations associated with (pure strategy) perfect Bayesian equilibria relative to any ad hoc set of negotiation schemes can be supported by pure strategy perfect Bayesian equilibria relative to the set of menus. It is also show...

We build a simple model of trust as an equilibrium phenomenon, departing from standard “selfish” preferences in a minimal way. Agents who are on the receiving end of an offer to transact can choose whether to cheat and take away the entire surplus, taking into account a “cost of cheating.” The latter has an idiosyncratic component (an agent’s type), and a socially determined one. The smaller th...

We define two families of rules to adjudicate conflicting claims. The first family contains the constrained equal awards, constrained equal losses, Talmud, and minimal overlap rules. The second family, which also contains the constrained equal awards and constrained equal losses rules, is obtained from the first one by exchanging, for each problem, how well agents with relatively larger claims ...

This paper examines an equilibrium model of social memory — a society’s vicarious beliefs about its past. We show that incorrect social memory is a key ingredient in creating and perpetuating destructive conflicts. We analyze an infinite-horizon model in which two countries face off each period in a game of conflict characterized by the possibility of mutually destructive “all out war” that yie...

Traditional game theoretic analysis often proposes the application of backwardinduction and subgame-perfection as models of rational behavior in games with perfect information. However, there are many situations in which such application leads to counterintuitive results, casting doubts on the predictive power of the theory itself. The Centipede Game, firstly introduced by Rosenthal (1981), rep...