Payment Schemes in Infinite-Horizon Experimental Games

Katerina Sherstyuk, Nori Tarui and Tatsuyoshi Saijo (tatsuyoshisaijo@gmail.com)

No 201118, Working Papers from University of Hawaii at Manoa, Department of Economics

Abstract: We consider payment schemes in experiments that model infinite-horizon games by using random termination. We compare paying subjects cumulatively for all periods of the game; with paying subjects for the last period only; with paying for one of the periods, chosen randomly. Theoretically, assuming expected utility maximization and risk neutrality, both the Cumulative and the Last period payment schemes induce preferences that are equivalent to maximizing the discounted sum of utilities. The Last-period payment is also robust under different attitudes towards risk. In comparison, paying subjects for one of the periods chosen randomly creates a present period bias. We further provide experimental evidence from in nitely repeated Prisoners' Dilemma games that supports the above theoretical predictions.

Keywords: economic experiments; infinite-horizon games; random termination (search for similar items in EconPapers)
JEL-codes: C73 C90 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2011-12-01
New Economics Papers: this item is included in nep-exp and nep-gth
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://www.economics.hawaii.edu/research/workingpapers/WP_11-18.pdf First version, 2011 (application/pdf)

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Journal Article: Payment schemes in infinite-horizon experimental games (2013)
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