Cooperation in stochastic games: a prisoner’s dilemma experiment

This experiment investigates a stochastic version of the infinitely repeated prisoner’s dilemma. The stochastic element introduces the importance of beliefs about the future for supporting cooperation as well as cooperation and defection on the equilibrium path. There is more cooperation in treatments where beliefs predict cooperation after subjects gain sufficient experience. There is some evidence for cooperation and defection as predicted by equilibrium, but there is stronger evidence for behavior conditioning on past actions that is not consistent with equilibrium play. In particular, subjects continue cooperating even when it is no longer possible in equilibrium for the realized game.