Beschreibung:
We conduct an experiment on a two-player infinitely repeated favor exchange game under incomplete information. In the stage game, each player has to decide whether to provide a favor to the other player. A favor generates a fixed benefit for the recipient and a cost for the provider, which can be either low or high. We study the situation where this cost is private information and it is efficient to provide a favor only when the cost is low. We focus on Stationary Strongly Symmetric (SSS) strategies, which prescribe players to play the same strategy after any history, and a class of Markov strategies, defined as Bounded Favors Bank (BFB) strategies, where the state variable is the net number of favors received by a player. Within this class, we consider strategies that involve either a reward (BFBr) or a punishment (BFBp) for doing/receiving favors. We find that overall subjects in the experiment are able to exchange favors to a relatively large extent. The results from strategy estimation and strategy-fitting procedures suggest that subjects' behavior can be largely explained by BFB strategies and SSS strategies. BFBr are more prevalent than BFBp, suggesting that rewarding subjects for making favors is a better way to sustain the exchange of favors. Among SSS strategies, never doing a favor is the most prevalent, but doing a favor when it is efficient is also very popular even though it is not an equilibrium strategy