Abstract
Network reciprocity has been widely advertised in theoretical studies as one of the basic cooperation-promoting mechanisms, but experimental evidence favoring this type of reciprocity was published only recently. When organized in an unchanging network of social contacts, human subjects cooperate provided the following strict condition is satisfied: The benefit of cooperation must outweigh the total cost of cooperating with all neighbors. In an attempt to relax this condition, we perform social dilemma experiments wherein network reciprocity is aided with another theoretically hypothesized cooperation-promoting mechanism-costly punishment. The results reveal how networks promote and stabilize cooperation. This stabilizing effect is stronger in a smaller-size neighborhood, as expected from theory and experiments. Contrary to expectations, punishment diminishes the benefits of network reciprocity by lowering assortment, payoff per round, and award for cooperative behavior. This diminishing effect is stronger in a larger-size neighborhood. An immediate implication is that the psychological effects of enduring punishment override the rational response anticipated in quantitative models of cooperation in networks.