Infinitely repeated games in the laboratory: four perspectives on discounting and random termination

Guillaume R. Fréchette, Sevgi Yuksel

    Research output: Contribution to journalArticlepeer-review

    Abstract

    This paper compares behavior under four different implementations of infinitely repeated games in the laboratory: the standard random termination method [proposed by Roth and Murnighan (J Math Psychol 17:189–198, 1978)] and three other methods that de-couple the expected number of rounds and the discount factor. Two of these methods involve a fixed number of repetitions with payoff discounting, followed by random termination [proposed by Sabater-Grande and Georgantzis (J Econ Behav Organ 48:37–50, 2002)] or followed by a coordination game [proposed in (Andersson and Wengström in J Econ Behav Organ 81:207–219, 2012; Cooper and Kuhn in Am Econ J Microecon 6:247–278, 2014a)]. We also propose a new method—block random termination—in which subjects receive feedback about termination in blocks of rounds. We find that behavior is consistent with the presence of dynamic incentives only with methods using random termination, with the standard method generating the highest level of cooperation. Subject behavior in the other two methods display two features: a higher level of stability in cooperation rates and less dependence on past experience. Estimates of the strategies used by subjects reveal that across implementations, even when the discount rate is the same, if interactions are expected to be longer defection increases and the use of the Grim strategy decreases.

    Original languageEnglish (US)
    Pages (from-to)279-308
    Number of pages30
    JournalExperimental Economics
    Volume20
    Issue number2
    DOIs
    StatePublished - Jun 1 2017

    Keywords

    • Discounting
    • Infinitely repeated games
    • Prisoner’s dilemma
    • Random termination

    ASJC Scopus subject areas

    • Economics, Econometrics and Finance (miscellaneous)

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