| By: |
Proto, Eugenio (University of Glasgow);
Rustichini, Aldo (University of Minnesota);
Sofianos, Andis (Heidelberg University) |
| Abstract: |
A large literature in behavioral economics has emphasized in the last decades
the role of individual differences in social preferences (such as trust and
altruism) and in influencing behavior in strategic environments. Here we
emphasize the role of attention and working memory, and show that social
interactions among heterogeneous groups are likely to be mediated by
differences in cognitive skills. Our design uses a Repeated Prisoner's
Dilemma, and we compare rates of cooperation in groups of subjects grouped
according to their IQ, with those in combined groups. While in combined groups
we observe higher cooperation rates and profits than in separated groups (with
consistent gains among lower IQ subjects and relatively smaller losses for
higher IQ subjects), higher IQ subjects become less lenient when they are
matched with lower IQ subjects than when they play separately. We argue that
this is an instance of a general phenomenon, which we demonstrate in an
evolutionary game theory model, where higher IQ among subjects determines –
through better working memory – a lower frequency of errors in strategy
implementation. In our data, we show that players indeed choose less lenient
strategies in environments where subjects have higher error rates. The
estimations of errors and strategies from the experimental data are consistent
with the hypothesis and the predictions of the model. |
| Keywords: |
IQ, intelligence, cooperation, repeated Prisoner's Dilemma, strategy, error in transition |
| JEL: |
C73 C91 C92 |
| Date: |
2020–01 |
| URL: |
http://d.repec.org/n?u=RePEc:iza:izadps:dp12925&r=all |