A New Approach to the Analysis of Cooperation Under the Shadow of the Future: Theory and Experimental Evidence

57 Pages Posted: 15 Aug 2018 Last revised: 14 Oct 2018

See all articles by Melis Kartal

Melis Kartal

Vienna University of Economics and Business

Wieland Müller

University of Vienna, Department of Economics & VCEE; Tilburg University, Department of Economics & CentER

Date Written: July 31, 2018

Abstract

The theory of infinitely repeated games lacks predictive power due to equilibrium multiplicity and its insensitivity to, for example, changes in certain parameters, the timing of players' moves or communication possibilities. We propose a new approach, which mitigates the shortcomings of the theory. In particular, we study a standard infinitely repeated prisoner's dilemma game and its variants with (i) heterogeneous tastes for cooperation, and (ii) strategic risk arising from incomplete information about the opponent's taste for cooperation. We theoretically show that the variants we study reduce strategic risk and boost cooperation and coordination on cooperation relative to the standard game, unlike what a theory based on pure material self-interest of players would predict. Our theoretical results are corroborated by the results of our experiments.

Keywords: prisoner's dilemma, cooperation, infinitely repeated games, strategic risk, game theory, experiments

JEL Classification: C73, C91, C92, D82, D83

Suggested Citation

Kartal, Melis and Müller, Wieland, A New Approach to the Analysis of Cooperation Under the Shadow of the Future: Theory and Experimental Evidence (July 31, 2018). Available at SSRN: https://ssrn.com/abstract=3222964 or http://dx.doi.org/10.2139/ssrn.3222964

Melis Kartal (Contact Author)

Vienna University of Economics and Business ( email )

Vienna, 1020
Austria

HOME PAGE: http://homepage.univie.ac.at/melis.kartal/

Wieland Müller

University of Vienna, Department of Economics & VCEE ( email )

Oskar-Morgenstern-Platz 1
Vienna, A-1090
Austria

HOME PAGE: http://https://homepage.univie.ac.at/wieland.mueller/

Tilburg University, Department of Economics & CentER ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

HOME PAGE: http://www.tilburguniversity.edu/webwijs/show/w.mueller-3.htm

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