A solution concept for games with altruism and cooperation
It addresses the challenge of predicting cooperative behavior in game theory for researchers and practitioners, though it appears incremental as it builds on existing ideas of altruism and cooperation.
The paper tackles the problem of modeling human cooperation in one-shot games by formalizing a new solution concept called cooperative equilibrium, which explains experimental findings across multiple games like Prisoner's dilemma and Ultimatum game.
Over the years, numerous experiments have been accumulated to show that cooperation is not casual and depends on the payoffs of the game. These findings suggest that humans have attitude to cooperation by nature and the same person may act more or less cooperatively depending on the particular payoffs. In other words, people do not act a priori as single agents, but they forecast how the game would be played if they formed coalitions and then they play according to their best forecast. In this paper we formalize this idea and we define a new solution concept for one-shot normal form games. We prove that this \emph{cooperative equilibrium} exists for all finite games and it explains a number of different experimental findings, such as (1) the rate of cooperation in the Prisoner's dilemma depends on the cost-benefit ratio; (2) the rate of cooperation in the Traveler's dilemma depends on the bonus/penalty; (3) the rate of cooperation in the Publig Goods game depends on the pro-capite marginal return and on the numbers of players; (4) the rate of cooperation in the Bertrand competition depends on the number of players; (5) players tend to be fair in the bargaining problem; (6) players tend to be fair in the Ultimatum game; (7) players tend to be altruist in the Dictator game; (8) offers in the Ultimatum game are larger than offers in the Dictator game.