Abstract
We study environments in which agents are randomly matched to play a Prisoner's Dilemma, and each player observes a few of the partner's past actions against previous opponents. We depart from the existing related literature by allowing a small fraction of the population to be commitment types. The presence of committed agents destabilizes previously proposed mechanisms for sustaining cooperation. We present a novel intuitive combination of strategies that sustains cooperation in various environments. Moreover, we show that under an additional assumption of stationarity, this combination of strategies is essentially the unique mechanism to support full cooperation, and it is robust to various perturbations. Finally, we extend the results to a setup in which agents also observe actions played by past opponents against the current partner, and we characterize which observation structure is optimal for sustaining cooperation.
| Original language | English |
|---|---|
| Pages (from-to) | 2253-2282 |
| Number of pages | 30 |
| Journal | Review of Economic Studies |
| Volume | 85 |
| Issue number | 4 |
| Early online date | 20 Dec 2017 |
| DOIs | |
| State | Published - 1 Oct 2018 |
Bibliographical note
Funding Information:for many useful comments. Danial Ali Akbari provided excellent research assistance. Yuval Heller is grateful to the European Research Council for its financial support (Starting Grant #677057). Erik Mohlin is grateful to Handelsbankens forskningsstiftelser (grant #P2016-0079:1), the Swedish Research Council (grant #2015-01751), and the Knut and Alice Wallenberg Foundation (Wallenberg Academy Fellowship #2016-0156) for their financial support. Finally, we thank Renana Heller for suggesting the title.
Publisher Copyright:
© The Author(s) 2017. Published by Oxford University Press on behalf of The Review of Economic Studies Limited.
Keywords
- Community enforcement
- Image scoring
- Indirect reciprocity
- Prisoner's dilemma
- Random matching