On Nash Equilibrium and Evolutionarily Stable States that Are Not Characterised by the Folk Theorem (1412.6077v3)

Abstract: In evolutionary game theory, evolutionarily stable states are characterised by the folk theorem because exact solutions to the replicator equation are difficult to obtain. It is generally assumed that the folk theorem, which is the fundamental theory for non-cooperative games, defines all Nash equilibria in infinitely repeated games. Here, we prove that Nash equilibria that are not characterised by the folk theorem do exist. By adopting specific reactive strategies, a group of players can be better off by coordinating their actions in repeated games. We call it a type-k equilibrium when a group of k players coordinate their actions and they have no incentive to deviate from their strategies simultaneously. The existence and stability of the type-k equilibrium in general games is discussed. This study shows that the sets of Nash equilibria and evolutionarily stable states have greater cardinality than classic game theory has predicted in many repeated games.