Non-Binding Suggestions, Self-Enforcing Norms and the Determinants of Cooperation in Repeated Games

It is often difficult to achieve the common good in the face of opportunistic incentives. Repeated interaction can alleviate this difficulty: rewards and punishments in future interactions can possibly overcome shortsighted considerations. Cooperation then becomes a possibility, but not a necessity.

The project experimentally investigates the self-sustainability of such cooperative norms, and addresses the question of how to make better norms focal. Society often expects leaders (such as CEOs, politicians, and school principals) to make pronouncements in the hope that such 'soft nudges' impact institutional culture and norms. This project investigates whether it is feasible, through the power of suggestion, to effect and sustain desired outcomes in the context of repeated relationships and communities.

It will shed light on the determinants of leadership’s ability to shift behavior towards desirable outcomes; investigate which suggested behaviors yield the greatest adherence, and which have little hope of emerging; examine whether suggestions have persistent effects; and consider whether suggestions couched in moral language are more effective than those phrased in neutral language.

The social dilemma is pervasive but theoretically solvable in the context of repeated interactions. Yet theory only reveals that the set of possible outcomes expands. It does not shed light on how to bring about an equilibrium achieving the desired societal outcomes.

The recent experimental literature on repeated games considers what norms will spontaneously crystallize in the lab, after filtering out transitory behavior. However, the equilibrium that arises in the lab may not come close to those arising in richer settings, where historical context, strategies' shared meaning, and pre-play communication play a role.

As such, current experiments may be overly harsh when it comes to assessing the limits of cooperation: not seeing cooperation spontaneously emerge may not reflect the full potential for cooperation in real-life problems. A laboratory environment cannot recreate the many ways in which an equilibrium might become focal. This study takes the more modest approach of testing the self-enforcing nature of different strategies using non-binding suggestions, akin to the pronouncements made by leaders.

This does not require having to witness the self-emergence of strategies, nor does it require introducing uncontrolled elements that defy the purposes of a lab setting. Failing to voluntarily follow a non-binding suggestion of some cooperative equilibrium strategies is evidence that it is unlikely to spontaneously crystallize and persist in real life.

The methodology involves varying the continuation probability, as a natural treatment-control for demand effects arising from statements made by third parties (in this case, the experimenter). This study will investigate many questions, including whether efficiency is higher when making a non-binding suggestion such as grim-trigger or tit-for-tat strategies, as opposed to when letting a convention emerge spontaneously; and how non-binding suggestions interact with previously studied determinants of cooperation (e.g., the role of risk dominance, risk aversion and altruism).

In addition to standard repeated games, this project will also explore the empirical validity of established theoretical notions of community enforcement.

This award reflects NSF's statutory mission and has been deemed worthy of support through evaluation using the Foundation's intellectual merit and broader impacts review criteria.