Abstract
In repeated games, it is hard to distinguish true prosocial behavior from strategic behavior. In particular, a player does not know whether a reciprocal action is intrinsically or strategically motivated. In this paper, we experimentally investigate the relationship between intrinsic and strategic reciprocity by running a two-period repeated trust game. In the “strategic treatment” the subjects know that they will meet twice, while in the “non-strategic treatment” they do not know and hence the second period comes as a surprise. We find that subjects anticipate strategic reciprocity, and that intrinsic reciprocity is rewarded. In fact, the total level of cooperation, in which trust is reciprocated, is higher in the non-strategic treatment. This indicates that strategic reciprocity crowds out intrinsic reciprocity: If one takes the repeated game incentives out of the repeated game, one sees more cooperation and higher social surplus.
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