Collusion as public monitoring becomes noisy: Experimental evidence

Masaki Aoyagi, Guillaume Fréchette

    Research output: Contribution to journalArticlepeer-review

    Abstract

    This paper uses laboratory experiments to test the implications of the theory of repeated games on equilibrium payoffs and estimate strategies in an infinitely repeated prisoners' dilemma game with imperfect public monitoring. We find that subjects' payoffs (i) decrease as noise increases, and (ii) are lower than the theoretical maximum for low noise, but exceed it for high noise. Under the assumption that the subjects' strategy uses thresholds on the public signal for transition between cooperation and punishment states, we find that the best fitting strategy simply compares the most recent public signal against a single threshold.

    Original languageEnglish (US)
    Pages (from-to)1135-1165
    Number of pages31
    JournalJournal of Economic Theory
    Volume144
    Issue number3
    DOIs
    StatePublished - May 2009

    Keywords

    • Collusion
    • Cooperation
    • Imperfect public monitoring
    • Repeated games

    ASJC Scopus subject areas

    • Economics and Econometrics

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