A note on fair threats and promises

Abstract

With their Sequential Reciprocity Equilibrium (SRE), Dufwenberg and Kirchsteiger (2004) developed a solution concept that incorporates reciprocity in sequential games. A SRE evaluates the kindness or unkindness of a strategy based purely on the actions it prescribes at the equilibrium path. However, given that it is not the objective of the SRE to evaluate threats and promises, it does not consider the actions outside the equilibrium path, where threats and promises are included. This article develops a new solution concept, Fair Threat Equilibria, which main objective is to give more reasonable predictions when threats and promises are included.