folk theorem

The folk theorem in game theory shows that in repeated interactions, players can sustain a variety of outcomes—including those that are better for everyone—by using strategies based on punishment or reward. Essentially, if players expect to interact multiple times, they can agree, tacitly or explicitly, to cooperate for mutual benefit, knowing that uncooperative behavior will be punished in future rounds. This creates an environment where many different stable results are possible, depending on the players’ expectations and strategies, beyond what could happen in a one-shot game.