The Importance of Being Even: Restitution in the Repeated Prisoner’s Dilemma

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Abstract: We study empirically and theoretically how restitution helps restoring cooperation in repeated social dilemmas. After a breach, restitution strategies “propose” returning to cooperation by cooperating against defection. They condition actions on the balance between given and received cooperation. We revisit previous experimental data from three classes of repeated Prisoner’s Dilemma games and find compelling evidence that subjects use restitution strategies in general, and one we called Payback, in particular. This also sheds light on some puzzles in the literature, including the widespread empirical support for Tit-for-tat, which is a non-equilibrium strategy; and the apparent almost exclusive use of memory-one strategies.

Keywords: Asymmetric strategies, cooperation, Laboratory experiments, Repeated games, Social dilemmas, Tit-for-tat