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A bias toward loss aversion in the choice to enter risky
cooperative games
While much research has addressed decision-making within prisoner’s dilemma
games, relatively little has examined the risky decision to enter such games in the
first place. Furthermore, few studies involving experimental games have
considered salient ecological factors—such as the manner in which game payoffs
are framed—that influence human psychology. We ask whether the choice
between entering v. not entering a PD game is more accurately described by
standard utility theory or the utility function proposed by prospect theory, which
emphasizes gains and losses relative to the status quo. Subjects chose between a
fixed “no play” option and the uncertainty of entering a PD when payoffs were
framed variously as involving losses and involving gains. Although payoffs were
equivalent across the two frames, we show, consistent with prospect theory, that
subjects entered PD play more frequently when options were framed as losses than
when they were framed as gains. These results solicit researchers studying game
behaviour to consider not only the internal, cognitive aspects involved in decision
making, but also the environmental features—e.g., game structure and frames—
that influence choice behaviour.
Laboratory research investigating choice behaviour in the prisoner’s dilemma
was originally focused on testing the prediction that rational people will choose the
dominant defect alternative, absent “extra-PD” incentives supporting cooperation.
Findings are, by now, unambiguous and well accepted: People often do cooperate in
such PD games (Camerer & Hogarth, 2003; Caporael, Dawes, Orbell, & van de Kragt,
1989; Dawes & Thaler, 1988; Ledyard, 1995), choosing against their private interest
and, thereby, producing greater social welfare.
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