Question

In Game Theory explain why when the discount rate is high there is an incentive to cheat and vice versa.

Answer 1

When the discount rate is high, it means people value the future by a smaller weight. So, people like to live in the present, since at present, by defecting from the co-operating equilibrium, they can earn a higher payoff, if the discount rate is higher, that gives the player more incentive to cheat. This can be said in the reverse direction also, if someone is more likely to cheat and he is rational, that means he values the future by a smaller light which can only happen when the discount rate is high.