Impact of Social Preferences, Trust and Behavioural Norms on Cooperation: Experimental Evidence from Prisoner’s Dilemma Game

The main objective of the study is to evaluate the impact of social preferences, trust and behavioural norms on strategic choices made by economic agents using the framework of a one-shot Prisoner’s Dilemma (PD) game. The standard neoclassical economics model predicts that all players will choose a strategy of non-cooperation, establishing it as the Nash equilibrium. We examine how social preferences and behavioural norms influence the player’s expectations from others and their own choices, by experimentally testing for the same using a 2 × 2 factorial design with the following three levels of partner selection arrangements: (i) game playing with stranger, (ii) face-to-face game playing with peer, and (iii) game playing with friend. The experimental results reveal significant deviations from the standard predictions of the one-shot PD game. The experimental data revealed that (i) players while interacting with a peer cooperated significantly more than playing with a stranger and (ii) players playing with a friend cooperated significantly more than playing with a peer. These changes in the social preferences of the players were further investigated in terms of trust/distrust and four behavioural norms—positive reciprocity, negative reciprocity, exploitation and altruism, and how these factors interact in influencing decision-making with respect to cooperation. JEL Classifications: C72, C91, D01, D91