| No | SDES-2016-15 |
|---|---|
| Title | Approval mechanism to solve prisoner's dilemma: Com- parison with Varian's compensation mechanism |
| Author | Tatsuyoshi Saijo, Takehito Masuda, Yoshitaka Okano and Takafumi Yamakawa |
| Abstract | After prisoner’s dilemma, players can approve or reject the other’s choice of cooperation or defection. If both players approve the other’s choice, the outcome is the one they chose; however, if either rejects the other’s choice, the outcome is the one they both defect. In theory, such approval mechanism implements cooperation in a backward elimination of weakly dominated strategies, although this is not the case in subgame perfect Nash equilibrium. By contrast, Varian’s (1994) compensation mechanism implements cooperation in the latter but not in the former, which motivates the present study. The approval mechanism sessions yield a cooperation rate of 90% in the first period and 93.2% across periods, while the compensation mechanism sessions yield a rate of 63.3% in the first period and 75.2% across periods, indicating a significant difference. In addition, the backward elimination of weakly dominated strategies better predicts subjects’ behavior than subgame perfect Nash equilibrium in both mechanism sessions. |
| Revised version published in |