For example, in the last line of Table 1, Cheating is seven times more profitable than playing Honest at each current round, the cost of querying the LM consumes one-third of the profits of Honest venturers, the cost of complaining is three times the profits of the venture, and half of any assets transferred in settlement of a judgment are lost. The judgment itself is six times what the Cheater could expect to earn from Honest trade with his next partner (nine times net of transaction costs). Nevertheless, if the inter-trade discount factor is at least 0.9, the LM system is in equilibrium and supports honest behavior, filing of valid complaints, and payment of judgments.

DEFINE: Explains the threshold discount factor of 0.9 that sustains equilibrium honest behavior in a repeated-trade game despite strong short-term cheating incentives. Builds on: "At equilibrium, traders who fail to query are constantly Cheated by their trading partners."

PAUL R. MILGRO, PAUL R. MILGRO - THE ROLE O…, loc. 122