Academic journal article Psychonomic Bulletin & Review

Risk Is Relative: Risk Aversion Yields Cooperation Rather Than Defection in Cooperation-Friendly Environments

Academic journal article Psychonomic Bulletin & Review

Risk Is Relative: Risk Aversion Yields Cooperation Rather Than Defection in Cooperation-Friendly Environments

Article excerpt

Abstract Previous findings concerning the relation of risk aversion and cooperation in repeated prisoner's dilemma games have been inconclusive. We hypothesized that this was due to an interaction between personality and environment. Specifically, we argued that in cooperation-friendly environments-given certain beliefs-defection is more risky than cooperation. The main reason for this is that, in such a situation, defection potentially yields outcomes of higher variance (and vice versa, for cooperation-unfriendly environments). In line with this hypothesis, we showed, in two experiments and a reanalysis of a study by Fudenberg, Rand, and Dreber (American Economic Review, in press), that the degree of cooperation increases with dispositional risk aversion in cooperation-friendly environments, but not in cooperation-unfriendly environments. We also found similar person-situation interactions for neuroticism and extraversion.

Keywords Social dilemma . Decision making . Prisoner's dilemma . Risk aversion . Individual differences . Personality

Cooperation is crucial for efficient interactions in societies. However, many situations entail a dilemma structure, in that noncooperative behavior is individually more beneficial than cooperation, as in the classic prisoner's dilemma (PD; Rapoport & Chammah, 1965). Behavior in PDs has been extensively studied, and substantial cooperation rates have been observed, contrary to rational-choice predictions (cf. Colman, 2003; Moshagen, Hilbig, & Musch, 2011). In a meta-analysis of 37 studies, the degrees of cooperation ranged from 5% to 96.9%, with an average of 47.4% (Sally, 1995). According to the same analysis, the degree of cooperation depends on a multitude of situational factors. In particular, the specific structure of the payoffmatrix has a strong influence, such that a lower temptation to defect and smaller losses when being exploited-as expressed in the cooperation index (Rapoport & Chammah, 1965)-increase cooperation (Vlaev & Chater, 2006).

Cooperation is observed not only in one-shot games, but also-and more so-in finitely repeated PD games (Andreoni &Miller, 1993). This seems plausible, as actors should weigh the potential long-term benefit of mutual cooperation against short-term profit maximization. Indeed, under certain circumstances, it may well feel riskier to exploit others, given that one will interact with them again and must thus fear retaliation through subsequent noncooperation. Similarly, in a finitely repeated PD, uncertainty about the partners' strategy can render cooperation rational-at least up to a certain round (Kreps, Milgrom, & Wilson, 1982). This situation holds if the other player is assumed not to be strictly rational, but rather a tit-for-tat player type (i.e., starting with cooperation and then responding with the same behavior observed in the other player). The number of rounds in which a rational player will cooperate is thus a function of the subjective probability of the other playing tit-for-tat and of the payoffs in the PD.

In contrast to the well-explored effects of situational factors, relatively little systematic research has been conducted on the influence of personality factors in PDs. Sally (1995) found that psychology students tended to cooperate more than other participants did. Furthermore, it has been found that an internal locus of control, high self-monitoring, and high sensation seekingwere systematically associatedwith cooperative behavior, particularly in repeated PDs (Boone et al., 2002; Boone, De Brabander, & van Witteloostuijn, 1999).

In the present work, we focus on the effects of individual differences in probabilistic risk aversion on cooperation. Risk aversion captures an individual's dispositional tendency to evaluate a prospect with (positive) probabilistic outcomes as having a value lower than (i.e., risk aversion), equal to (i.e., risk neutrality), or higher than (i. …

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