An Experimental Investigation on the Effect of Payoff Mechanisms on a Finitely Repeated Social Dilemma Game

Abstract

When experimenters conduct repetition in a game experiment, they usually adopt either an accumulated payoff mechanism (APM) or a random lottery payoff mechanism (RRPM) as a financial incentive. In this study, we experimentally dexamine whether the RRPM and APM induce identical behavior in a finitely repeated game experiment, where the subjects’ risk attitudes do not matter under the assumption of self-interest, but may matter if a social preference (e.g., conditional cooperation) is considered. Our hypothesis states that the riskiness of payoff mechanisms can affect the subjects’ strategic choices based on their risk attitudes. We found that the strategic behavior of risk-averse subjects differs between the APM and RRPM. Regression analyses confirm that the riskiness of payoff mechanisms affects subjects’ strategic behavior, in relation to their risk attitudes. The results suggest that the experimenters should be cautious when choosing a payoff mechanism for finitely repeated game experiments