Abstract:

Correlation of players' actions may evolve in the common course of the play of a repeated game with perfect monitoring ("obline correlation). In this paper we study the concealment of such correlation from a boundedly rational player. We show that "strong players, i.e., players whose strategic complexity is less stringently bounded, can orchestrate the obline correlation of the actions of "weak players, where this correlation is concealed from an opponent of "intermediate strength. The feasibility of such "ol concealed correlation is reflected in the individually rational payoff of the opponent and in the equilibrium payoffs of the repeated game. This result enables the derivation of a folk theorem that characterizes the set of equilibrium payoffs in a class of repeated games with boundedly rational players and a mechanism designer who sends public signals. The result is illustrated in two models, each of which captures a different aspect of bounded rationality. In the first, players use bounded recall strategies. In the second, players use strategies that are implementable by finite automata.

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