Belief diversity and cooperation

Abstract

This paper studies a two-player game in which the players face uncertainty regarding the nature of their partner. In this variation of the standard Prisoner’s Dilemma, players may encounter an ‘honest’ type who always cooperates. Mistreating such a player imposes a moral cost on the defector. This situation creates a trade-off, resolved in favor of cooperation if the player’s trust level, or belief in their partner’s honesty, is sufficiently high. We investigate whether an environment where players have explicit beliefs about each other’s honesty is more or less conducive to cooperation, compared to a scenario where players are entirely uncertain about their partner’s beliefs. We establish that belief diversity hampers cooperation in environments where the level of trust is relatively low and boosts cooperation in environments with a high level of trust.