We study a coordination game with randomly changing payoffs and small frictions in changing actions. Using only backwards induction, we find that players must coordinate on the risk-dominant equilibrium. More precisely, a continuum of fully rational players are randomly matched to play a...

This paper provides a folk theorem for two-player repeated games in which players have different discount factors. In such games, players can mutually benefit from trading payoffs across time. Hence, the set of feasible repeated game payoffs is typically larger than the convex hull of the...