Econometrica: Mar 1995, Volume 63, Issue 2
Notes and Comments: Necessary and Sufficient Conditions for the Perfect Finite Horizon Folk Theorem
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Comment on “Smith (1995): Perfect Finite Horizon Folk Theorem"
Smith (1995) proved a perfect folk theorem for finitely-repeated stage games with recursively distinct Nash payoffs, without assuming a non-equivalent utilities (NEU) condition. While his theorem is correct, the constructive proof contained a small gap, using strategies only guaranteed to form a SPNE under NEU. Here, we illustrate the gap with a counterexample, and resolve it with a small adjustment to his strategies.