Knowing Me, Knowing You: An Experiment on Mutual Payoff Information and Strategic Uncertainty

Abstract

We experimentally study how mutual payoff information affects play in strategic settings. Subjects play the Prisoner's Dilemma or Stag Hunt game against randomly re-matched opponents under two information treatments. In our partial-information treatment subjects are shown only their own payoffs, while in our full-information treatment they are shown both their own and their opponent's payoffs. In both treatments, they receive feedback on their opponent's action after each round. We find that mutual payoff information initially facilitates reaching the Pareto-efficient outcome in both games. While play in the Prisoner's Dilemma converges toward the unique Nash equilibrium of the game under both information treatments, mutual payoff information has a substantial impact on the equilibrium selection in the Stag Hunt throughout all rounds of the game. Using a belief-learning model and simulations of play, we provide evidence that these effects are driven not only by initial play but also by the way subjects learn. We propose that strategic uncertainty is a probable channel through which payoff information affects play.

Keywords: Payoff Information, Prisoner’s Dilemma, Stag Hunt, Strategic Uncertainty

JEL Classification: C71, C91, D81, D82, D83