Working Paper: NBER ID: w31288
Authors: Marina Agranov; Jeongbin Kim; Leeat Yariv
Abstract: The experimental literature on repeated games has largely focused on settings where players discount the future identically. In applications, however, interactions often occur between players whose time preferences differ. We study experimentally the effects of discounting differentials in infinitely repeated coordination games. In our data, differential discount factors play two roles. First, they provide a coordination anchor: more impatient players get higher payoffs first. Introducing even small discounting differentials reduces coordination failures significantly. Second, with pronounced discounting differentials, intertemporal trades are prevalent: impatient players get higher payoffs for an initial phase and patient players get higher payoffs in perpetuity afterward.
Keywords: Coordination; Differential Time Preferences; Experimental Evidence; Repeated Games
JEL Codes: C73; C92; D15; D25
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| differential discount factors (H43) | coordination anchor (E61) |
| unequal low treatment (I14) | reduced coordination failures (P11) |
| pronounced discounting differentials (H43) | facilitate intertemporal trades (D15) |
| unequal mixed treatment (C32) | efficient intertemporal trades (D15) |
| differential discount factors (H43) | dynamics of cooperation and coordination (D70) |