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Cycles of Distrust: An Economic Model

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  • Daron Acemoglu
  • Alexander Wolitzky

Abstract

We propose a model of cycles of distrust and conflict. Overlapping generations of agents from two groups sequentially play coordination games under incomplete information about whether the other side consists of “extremists” who will never take the good/trusting action. Good actions may be mistakenly perceived as bad/distrusting actions. We also assume that there is limited information about the history of past actions, so that an agent is unable to ascertain exactly when and how a sequence of bad actions originated. Assuming that both sides are not extremists, spirals of distrust and conflict get started as a result of a misperception, and continue because the other side interprets the bad action as evidence that it is facing extremists. However, such spirals contain the seeds of their own dissolution: after a while, Bayesian agents correctly conclude that the probability of a spiral having started by mistake is sufficiently high, and bad actions are no longer interpreted as evidence of extremism. At this point, one party experiments with a good action, and the cycle restarts. We show how this mechanism can be useful in interpreting cycles of ethnic conflict and international war, and how it also emerges in models of political participation, dynamic inter-group trade, and communication - leading to cycles of political polarization, breakdown of trade, and breakdown of communication.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18257.

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Date of creation: Jul 2012
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Handle: RePEc:nbr:nberwo:18257

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  1. Stefano DellaVigna & Ruben Enikolopov & Vera Mironova & Maria Petrova & Ekaterina Zhuravskaya, 2012. "Cross-border media and nationalism: Evidence from Serbian radio in Croatia," Working Papers w0189, Center for Economic and Financial Research (CEFIR).
  2. Bernhardt, Dan & Krasa, Stefan & Polborn, Mattias, 2008. "Political polarization and the electoral effects of media bias," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1092-1104, June.
  3. Sandeep Baliga & Tomas Sjostrom, 2001. "Arms Races and Negotiations," NajEcon Working Paper Reviews 391749000000000005, www.najecon.org.
  4. Dominic Rohner & Mathias Thoenig & Fabrizio Zilibotti, 2011. "War Signals: A Theory of Trade, Trust and Conflict," OxCarre Working Papers 058, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  5. Mehmet Ekmekci & Olivier Gossner & Andrea Wilson, 2010. "Impermanent Types and Permanent Reputations," Discussion Papers 1511, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  6. Sylvain Chassang & Gerard Padro i Miquel, 2008. "Conflict and Deterrence under Strategic Risk," NBER Working Papers 13964, National Bureau of Economic Research, Inc.
  7. Wiseman, Thomas, 2008. "Reputation and impermanent types," Games and Economic Behavior, Elsevier, vol. 62(1), pages 190-210, January.
  8. Nolan McCarty & Keith T. Poole & Howard Rosenthal, 2008. "Polarized America: The Dance of Ideology and Unequal Riches," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262633612, January.
  9. Monte, Daniel, 2013. "Bounded memory and permanent reputations," Journal of Mathematical Economics, Elsevier, vol. 49(5), pages 345-354.
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Cited by:
  1. Doepke, Matthias & Zilibotti, Fabrizio, 2013. "Culture, Entrepreneurship, and Growth," CEPR Discussion Papers 9516, C.E.P.R. Discussion Papers.
  2. Stefano DellaVigna & Ruben Enikolopov & Vera Mironova & Maria Petrova & Ekaterina Zhuravskaya, 2011. "Cross-border media and nationalism: Evidence from Serbian radio in Croatia," NBER Working Papers 16989, National Bureau of Economic Research, Inc.
  3. Hannes Mueller & Dominic Rohner & David Schoenholzer, 2013. "Tectonic Boundaries and Strongholds: The Religious Geography of Violence in Northern Ireland," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 13.04, Université de Lausanne, Faculté des HEC, DEEP.
  4. Vasiliki Fouka & Hans-Joachim Voth, 2013. "Reprisals Remembered: German-Greek Conflict and Car Sales during the Euro Crisis," Working Papers 726, Barcelona Graduate School of Economics.
  5. Jan Fidrmuc, 2012. "How Persistent is Social Capital?," CEDI Discussion Paper Series 12-04, Centre for Economic Development and Institutions(CEDI), Brunel University.

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