Pedro Dal Bó

Cooperation under the Shadow of the Future: Experimental Evidence from Infinitely Repeated Games

While there is an extensive literature on the theory of infinitely repeated games, empirical evidence on how the shadow of the future affects behavior is scarce and inconclusive. I simulate infinitely repeated prisoners dilemma games in the lab with a random continuation rule. The experimental design represents an improvement over the existing literature by including sessions with finite repeated games as controls and a large number of players per session (which allows for learning without contagion effects). I find that the shadow of the future not only matters by significantly reducing opportunistic behavior, but also that its impact closely follows theoretical predictions.

Strategy Choice in the Infinitely Repeated Prisoners’ Dilemma

We use a novel experimental design to identify subjects’ strategies in an infinitely repeated prisoners’ dilemma experiment. We ask subjects to design strategies that will play in their place. We find no clear evidence that eliciting strategies affected subjects’ behavior, supporting the validity of this method. We find the chosen strategies include some well-known ones such as Always Defect, Tit-For-Tat and Grim trigger. However, other strategies that are considered to have desirable properties, such as Win-Stay-Lose-Shift, are not prevalent. A majority of subjects use simple strategies that only condition on the previous period’s outcome. We also find that the strategies used to support cooperation change with the parameters of the game. We use the elicited strategies to test our ability to recover strategies using observed cooperate-defect choices and find that we can do so under certain conditions.

Love, Hate and Murder: Commitment Devices in Violent Relationships

Many violent relationships are characterized by a high degree of cyclicality: women who are the victims of domestic violence often leave and return multiple times. To explain this we develop a model of time inconsistent preferences in the context of domestic violence. This time inconsistency generates a demand for commitment. We present supporting evidence that women in violent relationships display time inconsistent preferences by examining their demand for commitment devices. We find that no-drop policies - which compel the prosecutor to continue with prosecution even if the victim expresses a desire to drop the charges - result in an increase in reporting. No-drop policies also result in a decrease in the number of men murdered by intimates suggesting that some women in violent relationships move away from an extreme type of commitment device when a less costly one is offered.

Tacit collusion under interest rate fluctuations

In contrast to the existing literature on repeated games that assumes a fixed discount factor, I study an environment in which it is more realistic to assume a fluctuating discount factor. In a repeated oligopoly, as the interest rate changes, so too does the degree to which firms discount the future. I characterize the optimal tacit collusion equilibrium when the discount factor changes over time, under both price and quantity competition, and I show that collusive prices and profits depend not only on the level of the discount factor but also on its volatility. Collusive prices and profits increase with a higher discount factor level, but decrease with its volatility. These results have important implications not only for the study of cooperation in repeated games but also for empirical studies of collusive pricing and the role that collusive pricing may play in economic cycles.