The Impact of the Termination Rule on Cooperation in a Prisoner's Dilemma Experiment
15 Pages Posted: 21 Dec 2006 Last revised: 28 Apr 2011
Date Written: April 27, 2011
Cooperation in prisoner's dilemma games can usually be sustained only if the game has an infinite horizon. We analyze to what extent the theoretically crucial distinction of finite vs. infinite-horizon games is reflected in the outcomes of a prisoner's dilemma experiment. We compare three different experimental termination rules in four treatments: a known finite end, an unknown end, and two variants with a random termination rule (with a high and with a low continuation probability, where cooperation can occur in a subgame-perfect equilibrium only with the high probability). We find that the termination rules do not significantly affect average cooperation rates. Specifically, employing a random termination rule does not cause significantly more cooperation compared to a known finite horizon, and the continuation probability does not significantly affect average cooperation rates either. However, the termination rules may influence cooperation over time and end-game behavior. Further, the (expected) length of the game significantly increases cooperation rates. The results suggest that subjects may need at least some learning opportunities (like repetitions of the supergame) before significant backward induction arguments in finitely repeated game have force.
Keywords: Prisoner's dilemma, Repeated games, Infinite-horizon games, Experimental economics
JEL Classification: C72, C92, D21, D43
Suggested Citation: Suggested Citation