This award funds research that will employ laboratory experiments to test game theory models of strategic interaction. Many economic situations involve repeated interactions where decision makers cannot directly observe the decisions made by other participants. In many of these situations, decision makers each have partial information about others' decisions. Any game where agents observe what the others do with error (and what is observed is only known to them) is a game with private monitoring. There are many real world examples, and economic theory has recently made substantial progress in developing new methods for analyzing these games. However, these theories have not yet been subjected to empirical testing. There are many real-world examples of these games, but gathering data from these examples to test the theory is difficult. Data about what agents privately observe is rare. Furthermore, other critical parameters from the point of view of the theory are often not observable or difficult to measure. Given this, the laboratory offers a valuable alternative to explore behavior in such environments.
The economic theory of imperfect private monitoring has mainly considered two extremes: almost perfect and almost public monitoring. As the names imply, almost perfect is imperfect but very close to perfect monitoring (where the players' signals are uncorrelated conditional on their actions) and almost public is has a private component but is very close to public (where signals are correlated). The new research funded with this award studies both almost perfect and almost public monitoring, in a series of three projects. The first question to be addressed is simple: can subjects support cooperation when monitoring is imperfect and private? If indeed subjects can support some cooperation, then the next question is how is their behavior different when monitoring is private as opposed to public or perfect? A more demanding version of this question to be explored is what strategies are most often used, and how do these vary with the particulars of the information structure? These are addressed by three projects implementing randomly terminated prisoner's dilemma games in the laboratory.
These projects will have a substantial impact on what we know about infinitely repeated games with private monitoring. They will also further our understanding of behavior with imperfect monitoring more generally.
Infinitely repeated games are characteristic of many types of human interactions: political, psychological, sociological, et cetera; making this project intrinsically interdisciplinary. Hence, these results will be relevant to many applications. Understanding factors that facilitate or hinder cooperation is a key question in the social sciences, and this research will provide partial answers. The PI will also be contributing to both graduate and undergraduate education; a wide variety of students will participate in this research.
