AP MicroeconomicsGame Theory & Information
Folk Theorem
The folk theorem states that in an infinitely repeated game with patient players, almost any reasonable (individually rational) outcome can be sustained as an equilibrium.
When a stage game is repeated indefinitely and players discount the future little, credible threats of future punishment let them support cooperative outcomes that are impossible in a one-shot game. So the set of equilibrium payoffs balloons to include nearly all feasible, individually rational payoffs. This formalizes why repeated interaction enables collusion, relational contracts, and reputation effects.