Beliefs in Repeated Games

This paper uses a laboratory experiment to study the formation and evolution of beliefs and their relationship to action and strategy choices in finitely and indefinitely repeated prisoner's dilemma games. This novel data set provides insights on the drivers of non-equilibrium behavior in finitely repeated games, and equilibrium selection in indefinitely repeated games.On average, beliefs reflect actions fairly accurately and thus showing distinct patterns across treatments, in particular for rounds close to the end of finitely repeated games. However, they also display small, systematic, and insightful deviations, such as early pessimism in indefinite games and late optimism in finite games.Using a novel technique to study beliefs over strategies, we show that subjects who play different strategies have different beliefs. Furthermore, those strategy choices can be related to beliefs in a meaningful way. Joint with Masaki Aoyagi and Sevgi Yuksel.