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Cooperation through indirect reciprocity: The impact of higher-order history

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  • Gong, Binglin
  • Yang, Chun-Lei

Abstract

Amid rapidly growing globalization and digitalization, trades often occur in one-time encounters, where cooperation depends on indirect reciprocity. This study investigates how people use higher-order information to aid in cooperation decisions. A random matching prisoners' dilemma experiment with optional history information up to the second order is conducted. With a novel continuous extension, we show that reputation scores standing and judging significantly affect cooperation decisions. Majority of the subjects respond to higher-order scores individually, and incorporating individual heterogeneity significantly improves the overall fit in aggregate regressions. A modified pooled mixture model classifies 31.7% of the subjects' behaviors into higher-order types. Subjects learn to use the judging score through their experiences. The reputation effect is stronger when subjects have first played the no-information baseline game, where reputation scores are more effective in a complementary way. We also find that cooperation improvement is significantly lower in the treatment with first-order information only.

Suggested Citation

  • Gong, Binglin & Yang, Chun-Lei, 2019. "Cooperation through indirect reciprocity: The impact of higher-order history," Games and Economic Behavior, Elsevier, vol. 118(C), pages 316-341.
    • Handle: RePEc:eee:gamebe:v:118:y:2019:i:c:p:316-341
    DOI: 10.1016/j.geb.2019.09.001
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    More about this item

    Keywords

    Prisoners' dilemma experiment; Indirect reciprocity; Higher-order information; Image score; Standing; Judging; Cooperation;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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