Mutual choice of partner and communication in a repeated prisoner's dilemma

Many markets resemble repeated prisoner's dilemma situations with the possibilities for mutual partner choice. In this paper, we show experimentally that partner choice by mutual consent has a strong positive effect on cooperation. Mutual partner choice makes it possible to form long-lasting reciprocal partnerships. To understand partnership formation we also add a treatment where the participants could communicate with each other in a common chat room. Chat transcript reveals that promises are important in forming and sustaining a partnership.