Cooperation in the repeated prisoner's dilemma game with local interaction and local communication

This paper considers a repeated prisoner's dilemma game in a network in which each agent interacts with his neighbors and cannot observe the actions of other agents who are not directly connected to him. If there is global information processing through public randomization and global communication, it is not difficult to construct a sequential equilibrium which supports cooperation and satisfies a property, called stability, which requires that cooperation resumes after any history. In this paper, we allow agents to locally communicate with their neighbors and show that it is possible to construct such an equilibrium without global information processing. Here, the role of local communication is to resolve the discrepancy of agents' expectations about their neighbor's future actions.