Reputation effects and other-regarding preferences have both been used to predict cooperative outcomes in markets with inefficient equilibria. Existing reputationbuilding models require either infinite time horizons or publicly observed identities, but cooperative outcomes have been observed in several moral hazard experiments with finite horizons and anonymous interactions. This paper introduces a full reputation equilibrium (FRE) with stereotyping (perceived type correlation) in which cooperation is predicted in early periods of a finitely repeated market with anonymous interactions. New experiments generate results in line with the FRE prediction, including final-period reversions to stage-game equilibrium and noncooperative play under unfavorable payoff parameters.

Experimental economists currently lack a convention for how to pay subjects in experiments with multiple tasks. We provide a theoretical framework for analyzing this question. Assuming statewise monotonicity and nothing else, we prove that paying for one randomly chosen problem—the random problem selection mechanism—is essentially the only incentive compatible mechanism. Paying for every period is similarly justified when we assume only a “no complementarities at the top” condition. To help experimenters decide which is appropriate for their particular experiment, we discuss empirical tests of these two assumptions.