Monitoring Accuracy and Retaliation in Infinitely Repeated Games with Imperfect Private Monitoring : Theory and Experiments

This paper experimentally examines infinitely repeated prisoners'dilemma games with imperfect private monitoring and random termination where the probability of termination is very low. Laboratory subjects make the cooperative action choices quite often, and make the cooperative action choice when monitoring is accurate more often than when it is inaccurate. Our experimental results, however, indicate that they make the cooperative action choice much less often than the game theory predicts. The subjects'naivete and social preferences concerning reciprocity prevent the device of regime shift between the reward and punishment phases from functioning in implicit collusion