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drnickbone comments on Interlude for Behavioral Economics - Less Wrong
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This is a good catch, and criticism of the "deliberately spoil the experiment" design.
A better design would be to put the contestants in adjacent rooms, but to allow the second contestant to "accidentally" overhear the first (e.g. speaking loudly, through thin walls). Then the experimenter enters the second contestant's room and asks them whether they want to co-operate or defect.