Abstract

The emergence and sustenance of cooperative behavior is fundamental for a society to thrive. Recent experimental studies have shown that cooperation increases in dynamic networks in which subjects can choose their partners. However, these studies did not vary reputational knowledge, or what subjects know about other’s past actions, which has long been recognized as an important factor in supporting cooperation. They also did not give subjects access to global social knowledge, or information on who is connected to whom in the group. As a result, it remained unknown how reputational and social knowledge foster cooperative behavior in dynamic networks both independently and by complementing each other. In an experimental setting, we show that global reputational knowledge is crucial to sustaining a high level of cooperation and welfare. Cooperation is associated with the emergence of dense and clustered networks with highly cooperative hubs. Global social knowledge has no effect on the aggregate level of cooperation. A community analysis shows that the addition of global social knowledge to global reputational knowledge affects the distribution of cooperative activity: cooperators form a separate community that achieves a higher cooperation level than the community of defectors. Members of the community of cooperators achieve a higher payoff from interactions within the community than members of the less cooperative community.