It Pays to Be Nice: The Benefits of Cooperating in Markets

Abstract

This paper contributes to the experimental literature by examining the causal effect of partner choice opportunities on the earnings of different cooperative types. Drawing on insights from the Indirect Evolutionary Approach and Adam Smith’s Classical Theory, we first elicit cooperative types and then randomly assign subjects to a repeated prisoner’s dilemma game, with either mutual partner choice or random matching. In each round, the individual who fails to attain a partner is excluded from the group. The results from three experiments show that partner choice allows cooperators to outperform free riders, that cooperators tend to earn more than free riders and that cooperators are less frequently excluded.