DP14595 Optimization incentives in dilemma games with strategic complementarity

Author(s): Jan Potters, Sigrid Suetens
Publication Date: April 2020
Keyword(s): Cooperation, Experiments, optimization incentives, repeated game, strategic complementarity
JEL(s): C91, D01, D74
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14595

We examine whether optimization incentives --- incentives to best-respond --- have an effect on behavior in finitely repeated two-player dilemma games with strategic complements. We run an experiment in which we increase optimization incentives in two different ways compared to a baseline treatment. In the first treatment, the increase in optimization incentives is created by an increase in payoffs on the best-response curve, while its slope remains unchanged. In the second treatment, the increase in optimization incentives takes the form of an increase in the slope of the best-response curve, while best-response payoffs remain unchanged. We find that the impact of optimization incentives is overshadowed by the effect of the slope of the best-response curve. Although an increase in optimization incentives leads subjects to best-respond more frequently when the best-response curve is relatively flat, it leads to more cooperative behavior if it is accompanied by an increase in the slope of the best-response function.