Sustaining cooperation with correlated information: an experimental test

In infinitely or indefinitely repeated games with noisy signals about others’ actions, sustaining cooperation is difficult. Theoretical work shows that cooperation can be maintained if the signals are correlated and the degree of correlation depends on the actions. In this study, we implement such an information structure in a laboratory experiment and investigate whether subjects are able to sustain cooperation by conditioning their behavior on it. A substantial number of subjects adopt strategies accounting for the correlation, but this does not increase cooperation compared to a control treatment without correlation, as behavior with independent signals is more lenient when players can communicate, while without communication cooperation remains low in both settings.