George J . Mailath and Wojciech Olszewski “ Folk Theorems with Bounded Recall under ( Almost ) Perfect Monitoring ” Third Version PIER Working Paper 10 - 007

We prove the perfect-monitoring folk theorem continues to hold when attention is restricted to strategies with bounded recall and the equilibrium is essentially required to be strict. As a consequence, the perfect monitoring folk theorem is shown to be behaviorally robust under almost-perfect almost-public monitoring. That is, the same specification of behavior continues to be an equilibrium when the monitoring is perturbed from perfect to highly-correlated private.