Incorporating risk attitude into the iterated prisoner's dilemma: Application to E-business

The era of E-business has opened up new possibilities for the emergence of cooperation among enterprises. In this paper, the iterated prisoner's dilemma (IPD), which has been widely studied to understand how cooperative behaviors may survive among unrelated individuals when selfish actions can produce better short-term results, is investigated by considering players' risk attitudes. The risk of an IPD interaction is defined as the standard deviation of the one-move payoff. A two-population coevolutionary model is exploited to simulate the IPD games with two players having either identical or different risk attitudes. Results indicate that both risk-averse and profit-seeking players can cooperate well with their opponents in the noiseless and low-noise environments. In high-noise environments, however, risk-averse players perform better in comparison to the profit-seeking players. With respect to managerial meaning in the field of E-business economics, our results indicate that enterprises in competition should value long-term relationships with each other for the purpose of adapting to the fast changing market. © 2012 Springer-Verlag Berlin Heidelberg.