FLM Research: Complications in Cooperating when Players are Asymmetric: Theory and Experimental Evidence

 

I study an indefinitely repeated game where players’ payoffs are asymmetric. Attempts to cooperate in such an environment, for example by rationing actions in proportion to some measure of size, have generally struggled in practice. Successful cooperation requires setting shares so that neither player will defect, which commonly requires allocating shares that disproportionately favors the player with larger payoffs — which the smaller player is unlikely to accept. One resolution to this conflict arises when players’ utility depends on payoff differences, which tends to increase the smaller player’s share. I then analyze experimental data that sheds light on this issue. I find that smaller players do not reduce their actions proportionately to their one-shot Nash equilibrium level. While inconsistent with the standard repeated-game result, this outcome is consistent with the version of the model where players’ payoffs reflect inequality aversion.

 

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