CARF-F-432|Asset Price Bubbles and the Financial System
Psychological Aspect of Monitoring Accuracy in Repeated Prisoners’ Dilemma
This study theoretically investigates an infinitely repeated prisoners’ dilemma in which the monitoring technology is imperfect and private. In contrast to previous works, we shed light on the psychological aspect of monitoring imperfection rather than its informational aspect. We demonstrate a behavioral model in which a player is motivated not only by pure self-interest but also by social preferences such as reciprocity and naïveté. We then focus on the possibility that a generous tit-for-tat strategy, a simple Markovian stochastic strategy, satisfies equilibrium properties. We show that the prediction from the behavioral model is opposed to, but much more compatible with, daily experiences and existing experimental evidence than the prediction from the standard model with pure self-interest.