Information Disclosure and Cooperation in a Finitely-Repeated Dilemma: Experimental Evidence

Abstract

A large volume of theoretical and experimental studies have suggested that making information on people's past behaviors visible to others may lead to the evolution of cooperation in finitely-repeated environments. But, do people endogenously cooperate with randomlymatched peers by revealing their past when they have an option to hide it? This paper experimentally shows that cooperation does not evolve in a random-matching environment because a large fraction of people do not choose to reveal their past behavior. However, when a costly sorting mechanism (where disclosers are matched with other disclosers; and likewise nondisclosers with other non-disclosers) is present, a stable number of subjects decide to costly disclose their past to join the reputation community and cooperate with other disclosers. Our study at the same time shows that when the sorting process is free, the high efficiency in the reputation community decreases as strategic subjects tend to join the reputation community and attempt to exploit cooperators. These findings suggest an important role of costly sorting mechanisms in the formation of communities (including online platforms) in order for people to sustain a high level of cooperation norms.