Trust, Beliefs and Cooperation: Excavating a Foundation of Strong Economies

One reason trust is positively correlated with standard of living across societies may be that people treat trustworthiness in sequential social dilemmas as a sign that others will also cooperate in simultaneous collective action problems, and trust tends to correlate with trustworthiness. Trustworthiness and cooperation may both reflect the same disposition: reciprocity. Whether trust itself predicts cooperation is less clear, a priori. We conduct a laboratory experiment and find that subjects infer cooperativeness from trustworthiness and on average cooperate more when they predict others to be more cooperative. A novel result is that subjects make the same inferences from trusting as from trustworthiness. We find that subjects’ priors entail considerable heterogeneity of trustworthiness, trust and cooperation within the population. Finally, conditional cooperation explains contributions better than guilt aversion, in our data.