Behavioral Approach to Repeated Games with Private Monitoring

Hitoshi Matsushima, Tomomi Tanaka and Tomohisa Toyama
Additional contact information
Tomomi Tanaka: Economic Development & Global Education, LLC
Tomohisa Toyama: Kogakuin University

No CARF-F-309, CARF F-Series from Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo

Abstract: We examine repeated prisoners’ dilemma with imperfect private monitoring and random termination where the termination probability is low. We run laboratory experiments and show subjects retaliate more severely when monitoring is more accurate. This experimental result contradicts the prediction of standard game theory. Instead of assuming full rationality and pure self-interest, we introduce naivete and social preferences, i.e., reciprocal concerns, and develop a model that is consistent with, and uniquely predicts, the observed behavior in the experiments. Our behavioral model suggests there is a trade-off between naivete and reciprocity. When people are concerned about reciprocity, they tend to make fewer random choices.

Pages: 49 pages
Date: 2013-03
New Economics Papers: this item is included in nep-cbe, nep-cta, nep-evo, nep-exp, nep-gth and nep-hpe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Working Paper: Behavioral Approach to Repeated Games with Private Monitoring (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:cfi:fseres:cf309

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