Punishment and Cooperation in Stochastic Social Dilemmas

Previous findings on punishment have focused on environments in which the outcomes are known with certainty. In this paper, we conduct experiments to investigate how punishment affects cooperation in a two-person stochastic prisoner’s dilemma environment where each person can decide whether or not to cooperate and the outcomes of alternative strategies are specified probabilistically. In particular, we study two types of punishment mechanisms: 1) both persons can punish; and 2) only cooperators can punish non-cooperators. Our data suggest significant evidence of retaliatory punishment under the first punishment mechanism. In contrast, the second type of punishment mechanism is significantly more effective at promoting cooperation than the first mechanism particularly in an environment where the outcomes are known with certainty than when they are stochastic. Our findings provide useful information for designing efficient incentive mechanisms to induce cooperation in a stochastic social dilemma environment.