Question

Suppose that a public goods game is played amongst 4 players as follows. Each player begins with $10. They can contribute any amount between $0 and $10 to the public good. Each dollar contributed by a player to the public good will result in 80c being received by each of the four players (including themselves). What outcome is predicted by basic game theory logic, what outcomes might expect in an experimental setting and why, and how punishment might affect the outcome?

Answer 1

The outcome of the best game theory logic is that everyone contributes an amount of $0. The reason is that if one contributes $1, they get $0.8 in return, so for any player, it is the best strategy not to contribute. Thus, it is the best strategy.

In an experimental setting, the outcome can be very different from the game theoretic outcome. It will also depend on whether the participants know each other or not and their personal attitude. So, probably if I see the participants are kind and socially conscious, then they will be contributing more, even the full amount.

Punishment strategy will definitely result in social optimum outcome i.e. everyone sharing the whole $10. It is possible if one does not contributed $x, then he will not be shared $2x amount and thus he will be incentivized to contribute to the fund. So, punishment will affect the outcome, definitely