Abstract:
More than half a century after the first experiment on the infinitely repeated prisoner's dilemma, evidence on whether cooperation decreases with experience, as predicted by backward induction, remains inconclusive. This talk provides a meta-analysis of prior experimental research and reports the results of a new experiment to elucidate how cooperation varies with the environment in this canonical game. Professor Frechette will describe forces that affect initial play (formation of cooperation) and unraveling (breakdown of cooperation). First, contrary to the backward induction prediction, the parameters of the repeated game have a significant effect on initial cooperation. Professor Frechette will identify how these parameters impact the value of cooperation as captured by the size of the basin of attraction of Always Defect to account for an important part of this effect. Second, despite differences in round one behavior, for all parameter combinations, evolution of behavior is consistent with the unraveling logic of backward induction. Importantly, despite the seemingly contradictory results across studies, Professor Frechette will reveal a systematic pattern of behavior: Subjects converge to using threshold strategies which conditionally cooperate until a threshold round; and conditional on using cooperative threshold strategies, the first defection round moves earlier with experience. This finding, combined with the impact of the value of cooperation on initial cooperation explain how results can vary across studies. Simulation results generated from a learning model estimated at the subject level provide insights on the long-term dynamics and the forces slowing down unraveling of cooperation.