Strategic Environment Effect and Communication

Abstract

We study the interaction of the effects of the strategic environment and communication on the observed levels of cooperation in two-person finitely repeated games with a Pareto-inefficient Nash equilibrium. We replicate previous findings that point to higher levels of tacit cooperation under strategic complementarity compared to strategic substitution. We find that this is not due to differences in levels of reciprocity as previously suggested. Instead, we find that slow learning coupled with noisy choices might drive this effect. When subjects are allowed to communicate in free-form online chat before making choices, cooperation levels increase significantly to the extent that the difference between strategic complements and substitutes disappears. A machine-assisted natural language processing approach shows how the content of communication is dependent on the strategic environment and cooperative behavior. In particular, we find that subjects in complementarity games reach full cooperation by agreeing on gradual moves towards it.

Keywords: Communication, Cooperation, Reinforcement learning, Strategic environment, Structural topic modeling

JEL Classification: C7, C8, C9, D83, L13