Extortion outperforms generosity in iterated Prisoners' Dilemma

Abstract: Promoting cooperation is an intellectual challenge in the social sciences, for which the iterated Prisoners' Dilemma (IPD) is a fundamental framework. The traditional view that there exists no simple ultimatum strategy whereby one player can unilaterally control the share of the surplus has been challenged by a new class of "zero-determinant" (ZD) strategies raised by Press and Dyson. In particular, the extortionate strategies can subdue the opponent and obtain higher scores. However, no empirical evidence has yet been found to support this theoretical finding. In a long-run laboratory experiment of the iterated Prisoners' Dilemma pairing each human subject with a computer co-player, we demonstrate that the extortionate strategy indeed outperforms the generous strategy against human subjects. Our results show that the extortionate strategy achieves higher scores than the generous strategy, the extortionate strategy promotes the cooperation rate to a similar level as the generous strategy does, and the human subjects' cooperation rates in both the extortionate and generous treatments are increasing over time. While our results imply that the human subjects cared about their earnings as well as fairness or reciprocity, we do observe that subjects learned to become increasingly cooperative over time to increase their own monetary payoffs. Our experiments provide the first laboratory evidence in support of the Press-Dyson theory.