Reputation and Cooperation: An Experiment on Prisoner’s Dilemma with Second-Order Information

Abstract

Motivated by the credit report and e-commerce feedback systems, we study how reputation facilitates cooperation. In a random-matching Prisoners’ Dilemma experiment with information about the opponent’s past actions and her previous opponents’, strong improvement on cooperation is observed. The reputation effect works much better when people have first experienced hardship with vanishing cooperation in no-information PD games, where subjects’ own history and their opponents’ affect their behavior in a complementary manner. As a novel analysis in the literature, we characterize how explicitly both levels of information affect cooperation decisions, in form of individually-derived summary statistics like judging and standing.