Infinitely Repeated Games in the Laboratory: Four Perspectives on Discounting and Random Termination

This paper compares behavior under four different implementations of infinitely repeated games in the laboratory: the standard random termination method (proposed by Roth & Murnighan (1978)) and three other methods that de-couple the expected number of rounds and the discount factor. Two of these methods involve a fixed number of repetitions with payoff discounting, followed by random termination (proposed by Sabater-Grande & Georgantzis (2002)) or followed by a coordination game (proposed in Andersson & Wengström (2012) and Cooper & Kühn (2014a)). We also propose a new method block random termination in which subjects receive feedback about termination in blocks of rounds. We find that behavior is consistent with the presence of dynamic incentives only with methods using random termination, with the standard method generating the highest level of cooperation. Subject behavior in the other two methods display two features: a higher level of stability in cooperation rates and less dependence on past experience. Estimates of the strategies used by subjects reveal that across implementations, even when the discount rate is the same, if interactions are expected to be longer defection increases and the use of the Grim strategy decreases. JEL Classification Numbers: C9; C72; C73; C91; C92.