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Payment schemes in infinite-horizon experimental games

Published online by Cambridge University Press:  14 March 2025

Katerina Sherstyuk,
Nori Tarui and
Tatsuyoshi Saijo
Katerina Sherstyuk*
Affiliation:
Department of Economics, University of Hawaii at Manoa, 2424 Maile Way, Honolulu, HI 96822, USA
Nori Tarui*
Affiliation:
University of Hawaii at Manoa, Honolulu, USA
Tatsuyoshi Saijo*
Affiliation:
Osaka University, Osaka, Japan
*
katyas@hawaii.edu
nori@hawaii.edu
saijo@iser.osaka-u.ac.jp
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Abstract

We consider payment schemes in experiments that model infinite-horizon games by using random termination. We compare paying subjects cumulatively for all periods of the game; with paying subjects for the last period only; with paying for one of the periods, chosen randomly. Theoretically, assuming expected utility maximization and risk neutrality, both the cumulative and the last period payment schemes induce preferences that are equivalent to maximizing the discounted sum of utilities. The last period payment is also robust under different attitudes toward risk. In comparison, paying subjects for one of the periods chosen randomly creates a present-period bias. We further provide experimental evidence from infinitely repeated prisoners’ dilemma games that supports the above theoretical predictions.

Keywords

Economic experimentsInfinite-horizon gamesRandom termination

JEL classification

C90: GeneralC73: Stochastic and Dynamic Games • Evolutionary Games • Repeated Games

Information

Type
Article
Information
Experimental Economics , Volume 16 , Issue 1: Mechanisms and Methodology , March 2013, pp. 125 - 153
Copyright
Copyright © 2012 Economic Science Association

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Footnotes

Electronic Supplementary Material The online version of this article (doi:https://doi.org/10.1007/s10683-012-9323-y) contains supplementary material, which is available to authorized users.

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