Pareto efficiency, simple game stability, and social structure in finitely repeated games

Simple game (sensu Brown and Vincent, 1987) evolutionary theory, when coupled with social structure measured as non‐random encounter of strategy “clones”, often permits equilibrium refinement leading to Pareto superior outcomes (e.g., Axelrod, 1981; Myerson et al., 1991), a foundational goal of economic game theory (Myerson, 1991: 370–375). This conclusion, derived from analyses of one‐shot and infinitely repeated games, fails for finitely repeated games. While mutant cluster invasion enhances Pareto efficiency of equilibria in the former, it can depress Pareto efficiency in the latter. Cooperative equilibria of finitely repeated games (under economic analysis) can be susceptible to cluster‐invasion by even more Pareto efficient strategies which are not themselves evolutionarily stable. Evolutionary (simple) game theory's ability to eliminate Pareto inferior Nash equilibrium strategies induces vulnerabilities foreign to economic analysis. Simple game analysis of finitely repeated games suggests that social structure, modeled as perennial invasion by mutant‐clusters, can induce cyclic invasion, saturation, and loss of cooperation.