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Emergence of trust in the trust game under best experienced payoff dynamics

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  • Arigapudi, Srinivas
  • Lahkar, Ratul

Abstract

The subgame perfect equilibrium (SPE) of the trust game is Pareto inferior. In that equilibrium, player 2 will not honor player 1’s trust and hence, player 1 will not trust player 2. We consider a large population version of the trust game. We apply a population game dynamic called the ‘best experienced payoff’ dynamic to this game. We establish conditions under which the SPE outcome in the trust game is unstable under this dynamic. We also show that an outcome where a substantial fraction of agents in population 1 displaying trust and a substantial fraction of agents in population 2 honoring that trust can be globally stable.

Suggested Citation

  • Arigapudi, Srinivas & Lahkar, Ratul, 2024. "Emergence of trust in the trust game under best experienced payoff dynamics," Economics Letters, Elsevier, vol. 236(C).
    • Handle: RePEc:eee:ecolet:v:236:y:2024:i:c:s0165176524001034
    DOI: 10.1016/j.econlet.2024.111620
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    References listed on IDEAS

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    More about this item

    Keywords

    Trust game; Best experienced payoff dynamics;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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