Cooperation in risky environments: Decisions from experience in a stochastic social dilemma

Cooperation in Risky Environments: Decisions from Experience in a Stochastic Social Dilemma Florian Artinger (artinger@mpib-berlin.mpg.de) Max Planck Institute for Human Development, Lentzeallee 94, 14195 Berlin, Germany Nadine Fleischhut (nadinefl@mpib-berlin.mpg.de) Max Planck Institute for Human Development, Lentzeallee 94, 14195 Berlin, Germany Vittoria Levati (vittoria.levati@univr.it) Faculty of Economics, Lungadige Porta Vittoria 41 - 37129 Verona, Italy Jeffrey R. Stevens (jeffrey.r.stevens@gmail.com) Department of Psychology, 238 Burnett Hall Lincoln, Nebraska 68588-0308, USA Abstract Often in cooperative situations, many aspects of the decision- making environment are uncertain. We investigate how cooperation is shaped by the way information about risk is presented (from description or from experience) and by differences in risky environments. Drawing on research from risky choice, we compare choices in stochastic social dilemmas to those in lotteries with equivalent levels of risk. Cooperation rates in games vary with different levels of risk across decision situations with the same expected outcomes, thereby mimicking behavior in lotteries. Risk presentation, however, only affected choices in lotteries, not in stochastic games. Process data suggests that people respond less to probabilities in the stochastic social dilemmas than in the lotteries. The findings highlight how an uncertain environment shapes cooperation and call for models of the underlying decision processes. Keywords: Decisions from Experience; Cooperation; Risky Choice; Public Good. Cooperation in Risky Environments When people face an opportunity to cooperate, such as when opening a business together or pursuing a joint research project, the outcomes of these enterprises are frequently uncertain. On the one hand, joint enterprises often constitute a social dilemma, where it is in the collective interest of the group to cooperate, yet individually rational to free ride. Despite these incentives, there is overwhelming evidence that many people still engage in cooperation (e.g., Ostrom, 1990). On the other hand, even if people cooperate outcomes often are uncertain due to a risky environment. For instance, even if all business partners cooperate, a new start-up may fail due to external events, such as natural disasters disrupting supplier shipments. Laboratory experiments show that when social dilemmas are embedded in a stochastic environment, cooperation declines sharply (for a review see E.Van Dijk et al., 2004). What has not been addressed is how different levels of environmental risk and the format in which it is presented affect cooperation. Studies on risky choice find a pronounced difference in behavior depending on how information in lotteries is presented: whether people sample the distribution of outcomes (decisions from experience) or decide based on a summary description of outcomes and probabilities (decision from description) (for a review see Rakow & Newell, 2010). In conventional lotteries with described probabilities, people choose as-if they overweight small probabilities as reflected in Prospect Theory (Kahneman & Tversky, 1992). In contrast, people decide as-if they underweight small probabilities if they acquire risk information sequentially by sampling (Hertwig et al., 2004). The difference in choice patterns between decisions from description and experience has been labeled the description- experience gap (DE gap). In lotteries, outcomes depend on environmental risk alone, whereas outcomes in social dilemmas also depend on the choices of other individuals. Stochastic social dilemmas thus combine social uncertainty and environmental risk. Yet our understanding of cooperation in stochastic environments is currently limited to situations in which environmental risk is described by outcomes and probabilities (e.g., Bereby- Meyer & Roth, 2006; Gong et al., 2009; Levati et al., 2009). We argue that real-world risky choices often involve experiencing the outcomes and probabilities of choices rather than receiving their summary statistics. Therefore, examining how risk presentation influences people’s decisions is critical to understand how and when people cooperate in risky environments. There is one important presupposition: risk presentation can influence cooperation only if people are responsive to differences in environmental risk. In lotteries, people’s decisions have been found to vary with different levels of risk, i.e. for different combinations of outcomes and probabilities while keeping the expected value constant. Analogously, one can describe a stochastic social dilemma by the expected payoffs of cooperation. In a one-shot prisoner's dilemma, people not only cooperate but also respond to different outcomes (Guyer & Rapoport, 1972). Extending this finding to a stochastic setting, the second goal of this study is to establish whether and how different levels of risk affect behavior in one-shot social dilemmas with the same expected payoffs.