Foundations for Cooperation in the Prisoners’ Dilemma

51 Pages Posted: 28 Sep 2013 Last revised: 6 Jun 2014

See all articles by Brendan Daley

Brendan Daley

Johns Hopkins University

Philipp Sadowski

Duke University - Department of Economics

Date Written: May 7, 2014

Abstract

We provide axiomatic foundations for a simple model of play in prisoners' dilemma games. The model accommodates cooperation and suggests that players behave as if their expectations about their opponents' behavior vary with their own choice. We refer to this nonstandard updating as magical thinking. The degree to which players exhibit magical thinking may be heterogeneous in the population and is captured by a uniquely identifi ed parameter for each player. Further, it is as if all players perceive these parameters to be i.i.d. draws from a common distribution. The model's identi fication allows for tractable comparative statics. We investigate how our theory extends to all symmetric 2x2 games.

The Supplement for this paper are available at the following URL: http://ssrn.com/abstract=2331585

Keywords: Prisoners’ dilemma, magical thinking, cooperation

JEL Classification: C7, D8

Suggested Citation

Daley, Brendan and Sadowski, Philipp, Foundations for Cooperation in the Prisoners’ Dilemma (May 7, 2014). Economic Research Initiatives at Duke (ERID) Working Paper No. 154, Available at SSRN: https://ssrn.com/abstract=2331579 or http://dx.doi.org/10.2139/ssrn.2331579

Brendan Daley

Johns Hopkins University ( email )

Baltimore, MD 20036-1984
United States

Philipp Sadowski (Contact Author)

Duke University - Department of Economics ( email )

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States
919-660-1800 (Phone)

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