Mutual choice of partner and communication in a repeated prisoner's dilemma

Abstract

Many markets resemble repeated prisoner's dilemma situations with the possibilities for mutual partner choice. In this paper, we show experimentally that partner choice by mutual consent has a strong positive effect on cooperation. Mutual partner choice makes it possible to form long-lasting reciprocal partnerships. To understand partnership formation we also add a treatment where the participants could communicate with each other in a common chat room. Chat transcript reveals that promises are important in forming and sustaining a partnership.