Scandinavian Working Papers in Economics

Working Papers,
Lund University, Department of Economics

No 2005:45: Choosing Opponents in Prisoners' Dilemma: An Evolutionary Analysis

Peter Engseld and Andreas Bergh ()
Additional contact information
Peter Engseld: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden
Andreas Bergh: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden

Abstract: We analyze a cooperation game in an evolutionary environment. Agents make noisy observations of opponents’ propensity to cooperate, called reputation, and form preferences over opponents based on their reputation. A game takes place when two agents agree to play. Pareto 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.

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

JEL-codes: C70; C72

23 pages, November 29, 2005

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