Cooperation in infinitely repeated games of strategic complements and substitutes

Abstract

We report the results of an experiment conducted to study the effect of strategic substitutability and strategic complementarity on cooperation in infinitely repeated two-player games. We find that choices in the first rounds of the repeated games are significantly more cooperative under strategic substitutes than under strategic complements and that players are more likely to choose joint-payoff maximizing choices in the former than in the latter case. We argue that this effect is driven by the fact that it is less risky to cooperate under substitutes than under complements. We also find that choices do not remain more cooperative under strategic substitutes than under complements over the course of the rounds within the repeated games. We show that this is because best-reply dynamics come into the picture: players are more inclined to follow cooperative moves of the partner under complements, offsetting the treatment effect observed in the first rounds.