Random Matching with Observable Past Actions: Experimental Tests of the Reputation Effect

Abstract

We compare the difference between giving by Partners and giving by Strangers in experiments with different dimensions of histories of past actions and different lengths of trials. In experiments with twenty trials, our experimental evidence shows that Partners contribute more than Strangers in most rounds when the histories of group contributions are not revealed to Strangers. The difference becomes smaller if this information is made available to Strangers, and eventually disappears if both Partners and Strangers are further informed about the histories of individual contributions. However, in experiments with two sequences of ten trials, Partners still contribute more than Strangers even if the histories of individual contributions are known. These observations suggest that more symmetric and detailed information regarding past actions reduces the difference between giving by Partners and giving by Strangers, but sufficient repetitions are necessary for this difference to be markedly reduced.