Voluntary Cooperation Based on Equilibrium Retribution –An Experiment Testing Finite-Horizon Folk Theorems

Unlike previous attempts to implement cooperation in a prisoners’ dilemma gamewith an infinite horizon in the laboratory, we focus on extended prisoners’ dilemmagames in which a second (pure strategy) equilibrium allows for voluntary cooperationin all but the last round. Our four main experimental treatments distinguish longversus short horizon and strict versus non-strict additional equilibrium compared tothe control treatment, a standard prisoners’ dilemma. Quite surprisingly, according toour results, only a strict additional equilibrium increases cooperation rate for a giventime horizon. As expected a longer time horizon promotes cooperation.