Handbook of Behavioral Industrial Organization
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Handbook of Behavioral Industrial Organization

Edited by Victor J. Tremblay, Elizabeth Schroeder and Carol Horton Tremblay

The Handbook of Behavioral Industrial Organization integrates behavioral economics into industrial organization. Chapters cover concepts such as relative thinking, salience, shrouded attributes, cognitive dissonance, motivated reasoning, confirmation bias, overconfidence, status quo bias, social cooperation and identity. Additional chapters consider industry issues, such as sports and gambling industries, neuroeconomic studies of brands and advertising, and behavioral antitrust law. The Handbook features a wide array of methods (literature surveys, experimental and econometric research, and theoretical modelling), facilitating accessibility to a wide audience.
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Chapter 8: Cooperation in the social domain: prisoners’ dilemma and social interactions

Evgeniya Lukinova, Wesley W. Wilson and Mikhail Myagkov

Abstract

The standard economic utility function considers defection to be the dominant strategy in the prisoners’ dilemma. Yet, in experiments, cooperative behavior is often observed even in one-shot games. Recent research suggests that framing as well as the substantive domain, i.e. where decision-makers act, matters and impacts outcomes. In this chapter we investigate the role of the “social domain” in the prisoners’ dilemma setting and test it in the laboratory experiments conducted in New Zealand, Russia and the United States. Other than in a standard prisoners’ dilemma, in these experiments, participants can endogenously select themselves into the game by a bidding mechanism and they can be ostracized depending on the votes by other players. We identify significant markers of prosocial behavior in the game and its change with time and experience. Although entering the social circle and playing prisoners’ dilemma does not ensure a bigger profit, participants demand social interactions. We find that in the social domain cooperation rates are significant and grow with the increase in demand for social relationships, but decrease with experience.

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