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Trust and Strategic Rationality

Author

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  • Bernd Lahno

    (University of Duisburg, Germany)

Abstract

The extent to which trust prevails can be measured by the subjective probability with which an agent expects another one to act in desired ways. An agent's trust in other agents forms during repeated social interactions that typically have the structure of an elementary game of trust. The process of trust formation in such interactions can be described by a reputation function. It is argued that in view of real-world processes of trust formation, any adequate reputation function must satisfy certain conditions. A simple model conforming to these conditions is presented. Analyzing this example, it is shown that there is a cooperative Nash equilibrium in a trust supergame, which is in accordance with the basic conditions of realistic trust formation. However, it is also proved that no process of trust formation, can be reasonably similar to real-world mechanisms and at the same time lead to subgame perfect equilibria in a trust supergame.

Suggested Citation

  • Bernd Lahno, 1995. "Trust and Strategic Rationality," Rationality and Society, , vol. 7(4), pages 442-464, October.
    • Handle: RePEc:sae:ratsoc:v:7:y:1995:i:4:p:442-464
    DOI: 10.1177/104346319500700408
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    References listed on IDEAS

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    1. Kreps, David M. & Milgrom, Paul & Roberts, John & Wilson, Robert, 1982. "Rational cooperation in the finitely repeated prisoners' dilemma," Journal of Economic Theory, Elsevier, vol. 27(2), pages 245-252, August.
    2. Kreps, David M. & Wilson, Robert, 1982. "Reputation and imperfect information," Journal of Economic Theory, Elsevier, vol. 27(2), pages 253-279, August.
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    Cited by:

    1. James Jr., Harvey S., 2002. "The trust paradox: a survey of economic inquiries into the nature of trust and trustworthiness," Journal of Economic Behavior & Organization, Elsevier, vol. 47(3), pages 291-307, March.
    2. Harvey S. James Jr., 2002. "On the Reliability of Trusting," Rationality and Society, , vol. 14(2), pages 229-256, May.
    3. Maroš Servátka & Steven Tucker & Radovan Vadovič, 2011. "Building Trust—One Gift at a Time," Games, MDPI, vol. 2(4), pages 1-22, September.
    4. Andrew Kydd, 2000. "Overcoming Mistrust," Rationality and Society, , vol. 12(4), pages 397-424, November.
    5. Harvey James, 2002. "The Trust Paradox: A Survey of Economic Inquiries Into the Nature of Trust and Trustworthiness," Microeconomics 0202001, University Library of Munich, Germany.
    6. Przepiorka, Wojtek, 2013. "Buyers pay for and sellers invest in a good reputation: More evidence from eBay," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 42(C), pages 31-42.

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