The interplay of cultural intolerance and action-assortativity for the emergence of cooperation and homophily

This paper investigates the emergence of cooperation in a heterogeneous population that is divided into two cultural groups. Agents are randomly matched in pairs to engage in a prisoner dilemma. The matching process is assortative in actions, that is, cooperators are more likely to be matched with cooperators, defectors are more likely to be matched with defectors. Agents exhibit a form of cultural intolerance: when two agents of different cultures are matched, they suffer a cost due to their cultural differences. We find that when cultural intolerance is sufficiently strong, homophily emerges together with perfect correlation between culture and behavior: all agents from one cultural group cooperate, while all agents from the other cultural group defect, and interactions among agents within the same cultural group are more frequent. The relation between cultural intolerance and societal welfare is non-monotonic. In particular, stronger cultural intolerance can increase cooperation when action-assortativity is weak, while it can increase defection when actionassortativity is strong. Moreover, everyone cooperating does not necessarily maximize total welfare unless cultural intolerance can be made sufficiently weak.