Reputation versus social learning

A folk theorem of game theory illustrates that strategic use of reputation can drastically alter the equilibrium play of an isolated group of n-players engaged in a finitely repeated game. We show that this folk theorem may fail in social settings where many groups of n-players play the game sequentially. The ability to strategically use reputation dies out over time due to players' opportunity to observe the play of earlier groups. This phenomenon is demonstrated in a model of Bayesian recurring games by using old and new techniques from the rational learning literature combined with a notion of purification. Classification Numbers: C72, C73, D83. (C) 1999 Academic Press.