Media Briefings

WHICH WAY TO COOPERATE: EXPERIMENTAL EVIDENCE ON THE BEST STRATEGY

  • Published Date: September 2012

Social and business dilemmas of how to cooperate are everywhere. Experimental research by Professors Todd Kaplan and Bradley Ruffle, published in the September 2012 issue of the Economic Journal, indicates which form of cooperation works best in a given situation – when it is best to take turns (like two children on a ride) and when it is best to have a cutoff based on quality (like a couple choosing which movie to watch).

The researchers cite several examples of alternative cooperation strategies. One involves two female friends cruising the town and confronting the dilemma of who gets to pursue the men they come across. To resolve who pursues which men and to avoid fighting over potential partners, they could agree to divide up the desirable men by taking turns. Or they could divide them up by such characteristics as height or hair colour, each relinquishing men they find less attractive.

Similarly, firms that compete with another in many markets could collude by alternately competing and acquiescing in markets or by staying out of their less profitable markets. And auction participants competing for similar objects auctioned in sequence could collude by taking turns bidding on objects or bidding only on sufficiently valuable ones.

The researchers investigate these two modes of cooperation – which they call ‘alternating cooperation’ and ‘cutoff cooperation’ – and characterise the circumstances in which each one is likely to arise. In short, each strategy has its place and time.

The study involves a series of experimental games between two players. In the initial iteration, each player privately receives a randomly drawn value – an integer between 1 and 5 inclusive. Each player then decides between one of two actions: enter or exit. By exiting, a player receives zero. By entering, the player receives his number if the other player exits and one-third of his number if the other player also enters.

Notice that each player selfishly does best by entry – but the two players can do better by avoiding double entry and having only one player enter. This game structure mirrors the real-world dilemmas faced by firms, auction participants and female friends – in which the overall surplus is increased when one player chooses not to enter, even though entry is in his or her self-interest.

The researchers find that the socially optimal symmetric cutoff strategy – in which a player enters on the numbers 3, 4 and 5, and exits otherwise – is players’ average choice in all experiments. Surprisingly few players adopt alternation, despite its ease of detection, strategic simplicity and ubiquity in real-world cooperation dilemmas.

In an effort to understand why so few players alternate, the researchers add a constant of 100 to all of the entry values. This renders the entry values similar to one another, thereby reducing the importance of players’ numbers, while leaving unchanged the inherent difficulty of both players coordinating on alternation. In these experiments, at least 95% of all cooperators use alternation.

These results indicate that when the skill required for a task varies little across individuals, players’ values tend to be alike and hence, according to these results, alternation is adopted. Similar values are likely if the task requires either low skills that all possess (that is, mundane tasks) or if it requires high skills but individuals are equally skilled at the task.

By contrast, individuals’ values are diffuse for tasks that call for a particular skill that not all individuals possess equally or tasks that elicit a strong heterogeneity in preferences. In these situations, cooperative players will adopt cutoff strategies.

This helps to explain why children take turns for who sits in a preferred seat (their desires for the seat don’t vary across rides), while couples will usually decide jointly which movie to see (one’s desire to see an action movie may actually vary based on perceived quality).

In short, each cooperative strategy has its place and time. Allowing members to choose their tasks exploits their private information. By the same token, conflict may ensue if more than one member opts for the same task, while other unwanted tasks may remain unfilled. Alternation assigns exactly one member to each task, thus at once avoiding conflict and ensuring that no opportunity is missed.

ENDS

Notes for editors: ‘Which Way to Cooperate’ by Todd Kaplan and Bradley Ruffle is published in the September 2012 issue of the Economic Journal.

Todd Kaplan is at the University of Exeter and the University of Haifa. Bradley Ruffle is at Ben-Gurion University.

For further information: contact Todd Kaplan on +44 (0)1392 263237 (email); or Romesh Vaitilingam on +44-7768-661095 (email).