Rational Cooperation in the Finitely Repeated Prisoner's Dilemma: Experimental Evidence
James Andreoni and John H. Miller
Key Words:
Repeated Prisoner's Dilemma, Experimental Economics, Rational Cooperation
In the finitely repeated prisoner's dilemma, it is well known that defection in every game is the unique, dominant-strategy Nash equilibrium. Kreps et al. (1982), however, show that if there is incomplete information about the types of players then cooperation early in the game can be consistent with rational behavior. Here we examine cooperation in the finitely repeated prisoner's dilemma by directly testing the model posed by Kreps et al. The sequential equilibrium reputation model appears to be a good predictive model of cooperative behavior in the game. However, we also find that those reputations are well-deserved. In the group that cannot build reputations, we find a consistent pattern of cooperation that doe snot deteriorate, even after 200 single shot rounds of the game. Hence, there clearly appears to be a significant number of "altruistic types" in the population.