Reputation for Playing Mixed Actions: A Characterization Theorem

Abstract

A patient player privately observes a persistent state that directly affects his myopic opponents' payoffs, and can be one of the several commitment types that plays the same mixed action in every period. I characterize the set of environments under which the patient player obtains at least his commitment payoff in all equilibria regardless of his stage-game payoff function. Due to interdependent values, the patient player cannot guarantee his mixed commitment payoff by imitating the mixed-strategy commitment type, and small perturbations to a pure commitment action can significantly reduce the patient player's guaranteed equilibrium payoff.