Strategic Environment Effect and Communication

50 Pages Posted: 25 Nov 2019 Last revised: 23 Jun 2020

See all articles by Ali Ozkes

Ali Ozkes

WU Vienna Institute for Markets and Strategy

Nobuyuki Hanaki

Université de Nice Sophia Antipolis - Groupe de Recherche en Droit, Economie et Gestion (GREDEG)

Date Written: June 23, 2020

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

Suggested Citation

Ozkes, Ali and Hanaki, Nobuyuki, Strategic Environment Effect and Communication (June 23, 2020). Available at SSRN: https://ssrn.com/abstract=3484927 or http://dx.doi.org/10.2139/ssrn.3484927

Ali Ozkes (Contact Author)

WU Vienna Institute for Markets and Strategy ( email )

Welthandelsplatz 1
Vienna, 1020
Austria

Nobuyuki Hanaki

Université de Nice Sophia Antipolis - Groupe de Recherche en Droit, Economie et Gestion (GREDEG) ( email )

250, rue Albert Einstein
Valbonne, 06560
France

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