Intelligence, Errors and Strategic Choices in the Repeated Prisoners' Dilemma

Abstract

A large literature in behavioral economics has emphasized in the last decades the role of individual differences in social preferences (such as trust and altruism) in influencing behavior in strategic environments. Here we emphasize the role of attention and working memory, and show that social interactions among heterogeneous groups are mediated by differences in cognitive skills. Our design uses a repeated prisoner’s dilemma; we compare rates of cooperation in groups of subjects separated according to their IQ, with those in integrated groups, where subjects of different IQ are pooled together. In integrated groups we observe higher aggregated cooperation rates and profits than in separated groups. There are gains in earnings among lower IQ subjects who learn how to cooperate faster than when they play separately, and smaller losses for higher IQ subjects. We also see that higher IQ subjects become less lenient when they are matched with lower IQ subjects than when they play separately. This pattern is an instance of a general phenomenon, which we demonstrate in an evolutionary game theory model, in which higher IQ among subjects induces –possibly thanks to better working memory– a lower frequency of errors in strategy implementation. We show that players indeed choose less-lenient strategies in environments in which subjects have higher error rates. Estimations of errors and strategies from the experimental data are consistent with the hypothesis and model’s predictions.