Bounded memory and permanent reputations

Abstract

A recent result in repeated incomplete information games is that after an arbitrarily long history, any equilibrium of the continuation game must be an equilibrium of the complete information game. This result implies that reputation is a short-run phenomenon. We study a particular class of reputation games and show that bounded memory may lead to permanent reputations. In fact, for a particular range of parameters, a bounded memory player may never be able to learn anything at all. (C) 2013 Elsevier B.V. All rights reserved.