Strategic environment effect and communication

Abstract

We study the interaction of the effects of the strategic environment and communication on the observed levels of cooperation in two-person finitely repeated games with a Pareto-inefficient Nash equilibrium and replicate previous findings that point to higher levels of tacit cooperation under strategic complementarity than under strategic substitutability. We find that this is not because of differences in the levels of reciprocity as previously suggested. Instead, we demonstrate that slow learning coupled with noisy choices may drive this effect. When subjects are allowed to communicate in free-form online chats before making choices, cooperation levels increase significantly to the extent that the difference between strategic complements and substitutes disappears. A machine-assisted natural language processing approach then shows how the content of communication is dependent on the strategic environment and cooperative behavior, and indicates that subjects in complementarity games reach full cooperation by agreeing on gradual moves toward it.