Abstract

We analyze the dynamics of repeated interaction of two players in the Prisoner's Dilemma under various levels of interdependency information and propose an instance-based learning cognitive model to explain how cooperation emerges over time. Six hypotheses are tested regarding how a player accounts for an opponent's outcomes: the selfish hypothesis suggests ignoring information about the opponent and utilizing only the player's own outcomes; the extreme fairness hypothesis weighs the player's own and the opponent's outcomes equally; the moderate fairness hypothesis weighs the opponent's outcomes less than the player's own outcomes to various extents; the linear increasing hypothesis increasingly weighs the opponent's outcomes at a constant rate with repeated interactions; the hyperbolic discounting hypothesis increasingly and nonlinearly weighs the opponent's outcomes over time; and the dynamic expectations hypothesis dynamically adjusts the weight a player gives to the opponent's outcomes, according to the gap between the expected and the actual outcomes in each interaction. When players lack explicit feedback about their opponent's choices and outcomes, results are consistent with the selfish hypothesis; however, when this information is made explicit, the best predictions result from the dynamic expectations hypothesis