Rational Actors, Tit-For-Tat Types, and the Evolution of Cooperation

Evolutionary models in economics have often been criticized for failing to allow for rational, maximizing behavior. The present paper represents a step toward correcting this deficiency, by introducing rational actors into an evolutionary model of the finitely repeated Prisoners' Dilemma. At the same time, the model endogenizes the uncertainty postulated in the classic model of Kreps, et al. (1982), thus explaining cooperation by rational actors in the finitely repeated Prisoners' Dilemma. A testable implication of the model is that the level of voluntary cooperation in a society will be relatively high where geographical mobility is relatively low.