Is Ignorance Bliss?

Abstract

This paper presents a two-round Prisoner’s Dilemma game with rematching between rounds involving two player types, ‘Giver’ and ‘Taker’. The former have more cooperative preferences than the latter. Two information conditions are compared: in one, player types are revealed before actions are chosen. In the other, types remain private information. In both cases first-round decisions are revealed to (new) partners in round 2. When the proportion of Givers is sufficiently high, a Perfect Bayesian Equilibrium (PBE) analysis for this game predicts that Givers discriminate based on opponents’ previous actions if type information is not revealed and, when type information is revealed, discriminate based on opponents’ type regardless of their previous actions. This implies the revelation of type information decreases cooperation. We study behavior in this game using a laboratory experiment. We observe that Givers discrimination as predicted by theory in both treatments. However, in contrast to the PBE prediction, we find players choose to cooperate more often when types are revealed. We show that an alternative theoretical approach based on image scoring can explain 60%–70% of our data.