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document appears as Working Paper of the Wharton Risk Management and

Previous research has shown an ‘interindividual-intergroup discontinuity effect’: intergroup interactions generally lead to less cooperative outcomes than interindividual interactions. We replicate the discontinuity effect in the deterministic prisoner’s dilemma, but find that groups are more cooperative than individuals in a stochastic version of the game. Three major factors, that underlie the usual discontinuity effect, were reduced in the stochastic environment: greed, fear, and persuasion power. Two group mechanisms are proposed to explain the reversed discontinuity effect: the motivation to avoid guilt and blame when making decisions that affect other’s welfare, and the social pressure to conform to certain norms when one is in a group setting.