Cooperating over losses and competing over gains: a social dilemma experiment

Evidence from studies in international relations, the politics of
reform, collective action and price competition suggests that
economic agents in social dilemma situations cooperate more to
avoid losses than in the pursuit of gains. To test whether the
prospect of losses can induce cooperation, we let experimental
subjects play the traveler’s dilemma in the gain and loss domain.
Subjects cooperate substantially more over losses. Our experimental
design allows us to show that this treatment effect is best
explained by reference-dependent risk preferences and
referencedependent strategic sophistication. We discuss policy
implications and relate our findings to other experimental games
played in the loss domain.