Slow to Anger and Fast to Forgive: Cooperation in an Uncertain World

Abstract

We study the experimental play of the repeated prisoner's dilemma when intended actions are implemented with noise. In treatments where cooperation is an equilibrium, subjects cooperate substantially more than in treatments without cooperative equilibria. In all settings there was considerable strategic diversity, indicating that subjects had not fully learned the distribution of play. Furthermore, cooperative strategies yielded higher payoffs than uncooperative strategies in the treatments with cooperative equilibria. In these treatments successful strategies were “lenient” in not retaliating for the first defection, and many were “forgiving” in trying to return to cooperation after inflicting a punishment. (JEL C72, C73, D81)