American Economic Review: Vol. 95 No. 5 (December 2005)
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Cooperation under the Shadow of the Future: Experimental Evidence from Infinitely Repeated Games
Bó, Pedro Dal. 2005. "Cooperation under the Shadow of the Future: Experimental Evidence from Infinitely Repeated Games." American Economic Review, 95(5): 1591-1604.
While there is an extensive literature on the theory of infinitely repeated games, empirical evidence on how "the shadow of the future" affects behavior is scarce and inconclusive. I simulate infinitely repeated prisoner's dilemma games in the lab with a random continuation rule. The experimental design represents an improvement over the existing literature by including sessions with finite repeated games as controls and a large number of players per session (which allows for learning without contagion effects). I find that the shadow of the future matters not only by significantly reducing opportunistic behavior, but also because its impact closely follows theoretical predictions.
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Bó, Pedro Dal