Abstract
This paper experimentally investigates the effect of information structure on the possibility of cooperation in the Prisoner’s Dilemma. We modify the information structure of the usual 2-person Prisoner’s Dilemma as follows: Nature chooses the order of moves with fifty-fifty chance and only the first mover’s Defection is observed by the second mover. When the payoffs of the modified Prisoner’s Dilemma satisfy some conditions, there exists a Nash equilibrium in which both players take Cooperation, in addition to the non-cooperative equilibrium (Nishihara (1997)). We find that this modification of information structure raises the possibility of cooperation when the cooperative equilibrium risk-dominates the non-cooperative one.
