Folk Theorem
A concept in repeated games suggesting that a wide range of outcomes can be sustained as equilibrium if the game is repeated infinitely and players are sufficiently patient.
Implications
A concept in game theory that suggests a wide variety of outcomes can be sustained as equilibrium in repeated games, depending on the strategies and behaviors of the players, often used to explain cooperation and competition in long-term interactions.
Example
Example: Two competing firms in a duopoly maintain stable prices over time due to the Folk Theorem, where each firm recognizes that aggressive price cuts could lead to a mutually destructive price war.
Related Terms
Different from one-shot games, where strategies are determined in a single interaction, the Folk Theorem applies to repeated interactions where players can influence future behavior through their current actions.
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