Sophistication and the persistence of cooperation Erwin Amann a,* , Chun-Lei Yang b a Department of Economics, Dortmund University, D-44221 Dortmund, Germany b Sun Yat-Sen Institute for Social Sciences and Philosophy, Academia Sinica, Nankang, Taipei, Taiwan Received 25 March 1997; accepted 30 October 1997 Abstract Sophistication is costly. In an evolutionary framework using replicator dynamics, this fact is instrumental in explaining the persistence of cooperation in joint venture situations with prisoner's dilemma characteristics, without relying on any reciprocity argument. Moreover, the asymptotically stable equilibrium is symbiotic with co-existence of cooperation, defection and cautious cooperation, very much like what we observe in reality. # 1998 Elsevier Science B.V. All rights reserved. JEL classi®cation: C73; D83 Keywords: Evolution; Cooperation; Replicator dynamics; Asymptotic stability; Prisoner's dilemma game 1. Introduction One of the most striking questions in economics is how people manage to cooperate so as to successfully exploit gains from trade, even though it is apparently individually rational to defect, that is to unilaterally exploit others' willingness to cooperation, leading to a complete breakdown of any cooperation. One most common answer to this `cooperation paradox' originates in the rationalistic approach of reciprocity. People cooperate in the short run because they can rationally foresee the long-run consequences of their behavior. In a repeated game setting with or without a long-run personal relationship among opponents there can exist equilibria in which sanctions are effectively sustainable that make cooperation appear to be the optimal short-run decision for Journal of Economic Behavior & Organization Vol. 37 (1998) 91±105 * e-mail: mik-eram@wiso.wiso.uni-dortmund.de 0167-2681/98/$ ± see front matter # 1998 Elsevier Science B.V. All rights reserved. PII:S0167-2681(98)00078-X