An Experimental Study of Cooperation in the Prisoner’s Dilemma with Observable Defection

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.