Finite automata play repeated prisoner's dilemma with information processing costs

We study the finitely repeated Prisoner's Dilemma game. Our players are modeled as finite automata. A population of boundedly rational players compete in a 'survival of the fittest' evolution contest simulated using Holland's genetic algorithm. Starting from a hostile population which plays defection frequently, our simulation results show that players converge to play cooperatively. This emergence of cooperative behavior breaks down when we penalize a complex strategy based on the size of the machine. On the other hand, a penalty cost that increases with the frequency an automaton switches states will not hurt the development of cooperative behavior.