Cooperation in Repeated Prisoner ’ s Dilemma with Outside Options ∗
نویسندگان
چکیده
In many repeated interactions, repetition is not guaranteed but instead must be agreed upon. We formulate a model of voluntary repetition by introducing outside options to a repeated Prisoner’s Dilemma and investigate how the structure of outside options affects the sustainability of mutual cooperation. Under stochastic outside options, the optimal exit decision and the incentive to cooperate within the repeated game are interrelated. This is a contrast to most literature which deals with either exit decision only (search models etc.) or cooperation incentive only (repeated games, contracts etc.). We show that the mean of outside options has a monotone negative effect on cooperation, while perturbation of the option values may enhance cooperation, when the player wants to wait for a very good option to realize. Two-sided options weaken the perturbation effect because one may end up with a low option and thus becomes less patient. (145 words)
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