The Folk Theorem

The Folk Theorem is a fundamental concept in game theory that explains how, in repeated interactions, players can sustain cooperation even if individual incentives might favor betraying that cooperation. Essentially, if players expect to interact multiple times, they can threaten to punish any defector by retaliating in future rounds. This creates a situation where cooperation becomes a stable outcome because the long-term benefits of maintaining a good relationship outweigh short-term gains from defection. The theorem shows that many cooperative behaviors are possible, provided players value future interactions enough to enforce mutually beneficial agreements.