Equilibrium Cooperation in Three-Person, Choice-of-Partner Games

Abstract

The experiment involves three-person games in which one player can choose which of two others to "do business with." The ability of the chooser to switch away from a defecting partner in a subsequent stage constitutes a salient action that may be used to punish static, noncooperative play. In this manner, cooperative outcomes that are not Nash equilibria in stage games can be supported by noncooperative behavior in a multistage game. As predicted by theory, cooperation rates are low in baseline single-stage games. Cooperation rates, however, are much higher in a 10-stage version of the game. Journal of Economic Literature Classification Numbers: C72, C92.