Experimental Economics

, Volume 16, Issue 1, pp 125–153 | Cite as

Payment schemes in infinite-horizon experimental games

Article

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 experiments Infinite-horizon games Random termination 

JEL Classification

C90 C73 

Supplementary material

10683_2012_9323_MOESM1_ESM.pdf (836 kb)
Sample Instructions (PDF 836 kB)

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Copyright information

© Economic Science Association 2012

Authors and Affiliations

  • Katerina Sherstyuk
    • 1
  • Nori Tarui
    • 2
  • Tatsuyoshi Saijo
    • 3
  1. 1.Department of EconomicsUniversity of Hawaii at ManoaHonoluluUSA
  2. 2.University of Hawaii at ManoaHonoluluUSA
  3. 3.Osaka UniversityOsakaJapan

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