Knowing Me, Knowing You: An Experiment on Mutual Payoff Information and Strategic Uncertainty

Abstract

We use a laboratory experiment to study how mutual payoff information affects play in strategic settings. Subjects play the Prisoner's Dilemma or Stag Hunt game against randomly re-matched opponents under two information treatments. In our partial-information treatment subjects are shown only their own payoffs, while in our full-information treatment they are shown both their own and their opponent's payoffs. In both treatments, they receive feedback on their opponent's action after each round. We find that mutual payoff information has a substantial effect on the equilibrium reached in the Stag Hunt and convergence in both games. Using a belief-learning model and simulations of play, we provide evidence that this effect is driven not only by initial play but also by the way subjects learn. We propose that strategic uncertainty is a probable channel driving these effects.