Payoffs, Beliefs and Cooperation in Infinitely Repeated Games

23 Pages Posted: 28 Jun 2023

See all articles by Maximilian Andres

Maximilian Andres

University of Potsdam

Lisa Bruttel

University of Potsdam

Juri Nithammer

University of Potsdam

Date Written: June 26, 2023

Abstract

This paper studies the interaction of beliefs, payoff parameters, and the cooperation rate in the infinitely repeated prisoner's dilemma. We show formally that a player's belief about the probability of cooperation by their opponent moderates the effect of changes in the payoff parameters on cooperation. If beliefs are high, increasing the gain from unilateral defection has a large negative effect on cooperation, while increasing the loss from unilateral cooperation has a negligible effect. However, if beliefs are low, this relationship is reversed: increasing the gain has only a negligible effect, while increasing the loss has a large negative effect on cooperation. The negative effect of both payoff parameters on cooperation becomes even larger when the belief is a function of the payoff parameters.

Keywords: infinitely repeated prisoner's dilemma, equilibrium-selection, beliefs, payoffs, cooperation

JEL Classification: C72, C73, D81, D83

Suggested Citation

Andres, Maximilian and Bruttel, Lisa and Nithammer, Juri, Payoffs, Beliefs and Cooperation in Infinitely Repeated Games (June 26, 2023). Available at SSRN: https://ssrn.com/abstract=4491762 or http://dx.doi.org/10.2139/ssrn.4491762

Maximilian Andres

University of Potsdam ( email )

August-Bebel Strasse 89
Potsdam, 14482
Germany

Lisa Bruttel

University of Potsdam ( email )

August-Bebel Strasse 89
Potsdam, 14482
Germany

Juri Nithammer (Contact Author)

University of Potsdam ( email )

August-Bebel Strasse 89
Potsdam, 14482
Germany

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