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Payment schemes in infinite-horizon experimental games

  • Katerina Sherstyuk

    ()

  • Nori Tarui

    ()

  • Tatsuyoshi Saijo

    ()

We consider payment schemes in experiments that model infinite-horizon games by using random termination. We compare paying subjects cumulatively for all periods of the game; with paying subjects for the last period only; with paying for one of the periods, chosen randomly. Theoretically, assuming expected utility maximization and risk neutrality, both the cumulative and the last period payment schemes induce preferences that are equivalent to maximizing the discounted sum of utilities. The last period payment is also robust under different attitudes toward risk. In comparison, paying subjects for one of the periods chosen randomly creates a present-period bias. We further provide experimental evidence from infinitely repeated prisoners’ dilemma games that supports the above theoretical predictions. Copyright Economic Science Association 2013

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Article provided by Springer in its journal Experimental Economics.

Volume (Year): 16 (2013)
Issue (Month): 1 (March)
Pages: 125-153

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Handle: RePEc:kap:expeco:v:16:y:2013:i:1:p:125-153
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