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Memory Equilibria in Two-Person Dynamic Games

The cooperative game with two players controlling a dynamic discrete-time deterministic system is considered. The cooperation is realized through the usage of memory equilibrium strategies enabling the players to formulate retaliation threats which prevent violation in the course of the game of an agreement negotiated at the beginning of the game. Several interesting properties of memory equilibria reflecting particular aspects of bargaining in the dynamic and imperfectly deterministic environment are discussed and illustrated by an example from the area of international relations.