Working Papers,
Lund University, Department of Economics

Abstract: We analyze a cooperation game and a coordination game in an evolutionary environment. Agents make noisy observations of opponent's propensity to play dove, called reputation, and form preferences over opponents based on their reputation. A game takes place when two agents agree to play. Socially optimal cooperation is evolutionarily stable when reputation perfectly reflects propensity to cooperate. With some reputation noise, there will be at least some cooperation. Individual concern for reputation results in a seemingly altruistic behavior. The degree of cooperation is decreasing in anonymity. If reputation is noisy enough, there is no cooperation in equilibrium. In the coordination game, the efficient equilibrium is chosen and agents with better skills to observe reputation earn more.

Keywords: Cooperation; Coordination; Conditioned Strategies; Prisoners Dilemma; Signaling; Reputation; Altruism; Evolutionary Equilibrium

JEL-codes: C70; C72

25 pages, First version: January 4, 2005. Revised: November 29, 2005. Earlier revisions: May 3, 2005, May 30, 2005, August 3, 2005.

Note: This paper has been replaced by 2005:45 "Choosing Opponents in Prisoners’ Dilemma: An Evolutionary Analysis"

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