IDEAS home Printed from https://ideas.repec.org/p/cir/cirwor/2024s-08.html
   My bibliography  Save this paper

Favor Exchange with Private Costs: An Experiment

Author

Listed:
  • Arianna Degan
  • Yushen Li
  • Huan Xie

Abstract

We conduct an experiment on a two-player infinitely repeated favor exchange game. In the stage game, each player must decide whether to provide a favor to the other player. A favor generates a fixed benefit for the recipient and a cost for the provider, which can be either low or high. We study the situation where this cost is private information, and it is efficient to provide a favor only when the cost is low. We address two general questions: To which extent subjects exchange favors in ways that are payoff enhancing, given that private information hinders exchanging favors efficiently? Which strategies do subjects choose and what are the driving forces behind their choices? We focus on Stationary Strongly Symmetric (SSS) strategies, where players play the same strategy after any history, and Equality Matching (EM) strategies, where subjects keep track of the net tallies of favors. We find that overall subjects in the experiment exchange favors to a relatively large extent and achieve an average payoff-efficiency index exceeding 60%. Although simpler strategies, as SSS, are played with the highest frequency, more complex strategies, as EM strategies, explain an important proportion of the data. Subjects’ behaviors are not always consistent with incentive compatibility or driven by the attainment of the highest payoffs. The results also suggest that rewarding subjects for trusting and reciprocating when it is efficient might be more acceptable than requiring them to take very costly actions on equilibrium path, even when it is overall payoff enhancing. Nous menons une expérience sur un jeu d'échange de faveurs à deux joueurs répété à l'infini. Dans le jeu de base, chaque joueur doit décider s'il doit rendre une faveur à l'autre joueur. Une faveur génère un bénéfice fixe pour le bénéficiaire et un coût pour le prestataire, ce coût pouvant être faible ou élevé. Nous étudions la situation où ce coût est une information privée, et il est efficient de rendre une faveur uniquement lorsque le coût est faible. Nous abordons deux questions générales : dans quelle mesure les sujets échangent-ils des faveurs de manière à améliorer leur utilité, étant donné que l'information privée empêche un échange de faveurs efficient ? Quelles stratégies choisissent les sujets et quels sont les facteurs qui influencent leurs choix ? Nous nous concentrons sur les stratégies Stationary Strongly Symmetric (SSS), où les joueurs suivent la même stratégie après chaque historique, et les stratégies d'Equality Matching (EM), où les sujets suivent les comptes nets de faveurs. Nous trouvons qu'en général, les sujets échangent des faveurs dans une large mesure et atteignent un indice d'efficacité des gains moyen supérieur à 60 %. Bien que des stratégies plus simples, comme les SSS, soient jouées avec une plus grande fréquence, des stratégies plus complexes, telles que les stratégies EM expliquent également une part significative des comportements observés. Les comportements des sujets ne sont pas toujours cohérents avec la compatibilité des incitations ou motivés par l'obtention des gains les plus élevés. En outre, les résultats suggèrent que récompenser la confiance et la réciprocité des joueurs lorsqu'il est efficient de le faire peut être plus acceptable que de les contraindre à prendre des actions coûteuses, même si cela conduit à une plus grande efficacité globale.

Suggested Citation

  • Arianna Degan & Yushen Li & Huan Xie, 2024. "Favor Exchange with Private Costs: An Experiment," CIRANO Working Papers 2024s-08, CIRANO.
  • Handle: RePEc:cir:cirwor:2024s-08
    as

    Download full text from publisher

    File URL: https://cirano.qc.ca/files/publications/2024s-08.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Pedro Dal Bó, 2005. "Cooperation under the Shadow of the Future: Experimental Evidence from Infinitely Repeated Games," American Economic Review, American Economic Association, vol. 95(5), pages 1591-1604, December.
    2. Smyth, Andrew & Rodet, Cortney S., 2023. "Cooperation in indefinite games: Evidence from red queen games," Journal of Economic Behavior & Organization, Elsevier, vol. 208(C), pages 230-257.
    3. Athey, Susan & Bagwell, Kyle, 2001. "Optimal Collusion with Private Information," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 428-465, Autumn.
    4. Matthew Embrey & Friederike Mengel & Ronald Peeters, 2019. "Strategy revision opportunities and collusion," Experimental Economics, Springer;Economic Science Association, vol. 22(4), pages 834-856, December.
    5. Jones, Matthew T., 2014. "Strategic complexity and cooperation: An experimental study," Journal of Economic Behavior & Organization, Elsevier, vol. 106(C), pages 352-366.
    6. Yaroslav Rosokha & Julian Romero, 2017. "Constructing Stategies in the Indefinitely Repeated Prisoner's Dilemma Game," Purdue University Economics Working Papers 1298, Purdue University, Department of Economics.
    7. Mehta, Judith & Starmer, Chris & Sugden, Robert, 1994. "The Nature of Salience: An Experimental Investigation of Pure Coordination Games," American Economic Review, American Economic Association, vol. 84(3), pages 658-673, June.
    8. Guillaume R. Fréchette & Sevgi Yuksel, 2017. "Infinitely repeated games in the laboratory: four perspectives on discounting and random termination," Experimental Economics, Springer;Economic Science Association, vol. 20(2), pages 279-308, June.
    9. Camera, Gabriele & Gioffré, Alessandro, 2022. "Cooperation in indefinitely repeated helping games: Existence and characterization," Journal of Economic Behavior & Organization, Elsevier, vol. 200(C), pages 1344-1356.
    10. Engle-Warnick, Jim & Slonim, Robert L., 2004. "The evolution of strategies in a repeated trust game," Journal of Economic Behavior & Organization, Elsevier, vol. 55(4), pages 553-573, December.
    11. David Roodman & James G. MacKinnon & Morten Ørregaard Nielsen & Matthew D. Webb, 2019. "Fast and wild: Bootstrap inference in Stata using boottest," Stata Journal, StataCorp LP, vol. 19(1), pages 4-60, March.
    12. Yves Breitmoser, 2015. "Cooperation, but No Reciprocity: Individual Strategies in the Repeated Prisoner's Dilemma," American Economic Review, American Economic Association, vol. 105(9), pages 2882-2910, September.
    13. Hyndman, Kyle & Müller, Rudolf, 2020. "The role of incentives in dynamic favour exchange: An experimental investigation," Journal of Economic Behavior & Organization, Elsevier, vol. 172(C), pages 83-96.
    14. Romero, Julian & Rosokha, Yaroslav, 2018. "Constructing strategies in the indefinitely repeated prisoner’s dilemma game," European Economic Review, Elsevier, vol. 104(C), pages 185-219.
    15. Roy Radner & Roger Myerson & Eric Maskin, 1986. "An Example of a Repeated Partnership Game with Discounting and with Uniformly Inefficient Equilibria," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 53(1), pages 59-69.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Heller, Yuval & Tubul, Itay, 2023. "Strategies in the repeated prisoner’s dilemma: A cluster analysis," MPRA Paper 117444, University Library of Munich, Germany.
    2. Fabian Dvorak & Sebastian Fehrler, 2024. "Negotiating Cooperation under Uncertainty: Communication in Noisy, Indefinitely Repeated Interactions," American Economic Journal: Microeconomics, American Economic Association, vol. 16(3), pages 232-258, August.
    3. Cason, Timothy N. & Mui, Vai-Lam, 2019. "Individual versus group choices of repeated game strategies: A strategy method approach," Games and Economic Behavior, Elsevier, vol. 114(C), pages 128-145.
    4. Felix Kölle & Simone Quercia & Egon Tripodi, 2023. "Social Preferences under the Shadow of the Future," Rationality and Competition Discussion Paper Series 406, CRC TRR 190 Rationality and Competition.
    5. Tetsuya Kawamura & Tiffany Tsz Kwan Tse, 2022. "Intelligence promotes cooperation in long-term interaction: experimental evidence in infinitely repeated public goods games," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 17(4), pages 927-946, October.
    6. Drouvelis, Michalis & Pearce, Graeme, 2023. "Leadership under the shadow of the future: Intelligence and strategy choice in infinitely repeated games," European Economic Review, Elsevier, vol. 152(C).
    7. Yaroslav Rosokha & Julian Romero, 2017. "Constructing Stategies in the Indefinitely Repeated Prisoner's Dilemma Game," Purdue University Economics Working Papers 1298, Purdue University, Department of Economics.
    8. Friedman, Daniel & Zhao, Shuchen, 2021. "When are mixed equilibria relevant?," Journal of Economic Behavior & Organization, Elsevier, vol. 191(C), pages 51-65.
    9. Romero, Julian & Rosokha, Yaroslav, 2018. "Constructing strategies in the indefinitely repeated prisoner’s dilemma game," European Economic Review, Elsevier, vol. 104(C), pages 185-219.
    10. Bendoly, Elliot & van Wezel, Wout & Bachrach, Daniel G. (ed.), 2015. "The Handbook of Behavioral Operations Management: Social and Psychological Dynamics in Production and Service Settings," OUP Catalogue, Oxford University Press, number 9780199357222.
    11. Werner, Tobias, 2021. "Algorithmic and human collusion," DICE Discussion Papers 372, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    12. James R. Bland, 2020. "Heterogeneous trembles and model selection in the strategy frequency estimation method," Journal of the Economic Science Association, Springer;Economic Science Association, vol. 6(2), pages 113-124, December.
    13. Philip Brookins & Dmitry Ryvkin & Andrew Smyth, 2021. "Indefinitely repeated contests: An experimental study," Experimental Economics, Springer;Economic Science Association, vol. 24(4), pages 1390-1419, December.
    14. Jiang, Janet Hua & Puzzello, Daniela & Zhang, Cathy, 2021. "How long is forever in the laboratory? Three implementations of an infinite-horizon monetary economy," Journal of Economic Behavior & Organization, Elsevier, vol. 184(C), pages 278-301.
    15. Somayeh Kokabisaghi & Eric J Pauwels & Andre B Dorsman, 2019. "To snipe or not to snipe, that is the question! Transitions in sniping behaviour among competing algorithmic traders," Papers 1912.04012, arXiv.org, revised Sep 2020.
    16. Smyth, Andrew & Rodet, Cortney S., 2023. "Cooperation in indefinite games: Evidence from red queen games," Journal of Economic Behavior & Organization, Elsevier, vol. 208(C), pages 230-257.
    17. Fudenberg, Drew & Yamamoto, Yuichi, 2011. "Learning from private information in noisy repeated games," Journal of Economic Theory, Elsevier, vol. 146(5), pages 1733-1769, September.
    18. Kartal, Melis & Müller, Wieland & Tremewan, James, 2021. "Building trust: The costs and benefits of gradualism," Games and Economic Behavior, Elsevier, vol. 130(C), pages 258-275.
    19. Maximilian Andres, 2024. "Equilibrium selection in infinitely repeated games with communication," CEPA Discussion Papers 75, Center for Economic Policy Analysis.
    20. Todd R. Kaplan & Bradley J. Ruffle, 2012. "Which Way to Cooperate," Economic Journal, Royal Economic Society, vol. 122(563), pages 1042-1068, September.

    More about this item

    Keywords

    Favor exchange; Indefinitely repeated games; Incomplete information; Strategy estimation; Strategy fitting; Échange de faveurs; Jeux répétés à l’infini; Information incomplète; Estimation de stratégie; Ajustement de stratégie;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cir:cirwor:2024s-08. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Webmaster (email available below). General contact details of provider: https://edirc.repec.org/data/ciranca.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.