A New Approach to the Analysis of Cooperation Under the Shadow of the Future: Theory and Experimental Evidence

Abstract
The theory of infinitely repeated games lacks predictive power due to equilibrium multiplicity and its insensitivity to, for example, changes in some game parameters, the timing of players' moves and communication possibilities. We propose a new approach to mitigate the shortcomings of the theory. Specifically, we study a standard infinitely repeated prisoner's dilemma game and its variants with (i) heterogeneous preferences for cooperation and defection, and (ii) strategic risk arising from incomplete information about the opponent's preferences. Our model generates a rich set of comparative static predictions in a variety of settings that go beyond the standard prisoner's dilemma game. We show that, unlike the standard theory and other existing models, our approach organizes the findings of a host of experiments including our novel experiments. Joint paper with: Wieland Müller.

Link to paper: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3222964