CARF-F-433|Asset Price Bubbles and the Financial System
Accuracy and Retaliation in Repeated Games with Imperfect Private Monitoring: Experiments
We experimentally examine repeated prisoner’s dilemma with random termination, in which monitoring is imperfect and private. Our estimation indicates that a significant proportion of subjects follow generous tit-for-tat strategies, which are stochastic extensions of tit-for-tat. However, the observed retaliating policies are inconsistent with the generous tit-for-tat equilibrium behavior. Contrary to the prediction of the equilibrium theory, subjects tend to retaliate more with high accuracy than with low accuracy. They tend to retaliate more than the equilibrium theory predicts with high accuracy, while they tend to retaliate less with low accuracy.