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Trust, Introspection, and Market Participation: an Evolutionary Approach

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  • Adriani, Fabrizio
  • Sonderegger, Silvia

Abstract

We build a model where introspection matters - i.e., people rationally form expectations about others using the lens of their own attitudes. Since trustworthy individuals are more "optimistic" about people than opportunists, they are less afraid to engage in market-based exchanges, where they may be vulnerable to opportunistic behavior. Within this context, we use an indirect evolutionary approach to endogenize preferences for trustworthiness. In some cases, the material rewards from greater market participation may outweigh the material disadvantages from foregoing lucrative expropriation opportunities. This implies that trustworthiness may be evolutionary stable in the long-term. Although stricter enforcement (that limits the scope for opportunistic behavior) does in some cases favor preferences for trustworthy behavior (crowding in) we show that the opposite (crowding out) may also occur. Our findings are consistent with recent empirical evidence.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 16110.

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Date of creation: Jul 2009
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Handle: RePEc:pra:mprapa:16110

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Keywords: Endogenous Preferences; Trust; Introspection; Institutions; Enforcement; Crowding Out;

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  1. Adriani, Fabrizio & Sonderegger, Silvia, 2009. "Why do parents socialize their children to behave pro-socially? An information-based theory," Journal of Public Economics, Elsevier, vol. 93(11-12), pages 1119-1124, December.
  2. Sapienza, Paola & Toldra Simats, Anna & Zingales, Luigi, 2007. "Understanding Trust," CEPR Discussion Papers 6462, C.E.P.R. Discussion Papers.
  3. Iris Bohnet & Bruno S. Frey & Steffen Huck, . "More Order with Less Law: On Contract Enforcement, Trust, and Crowding," IEW - Working Papers 052, Institute for Empirical Research in Economics - University of Zurich.
  4. Swinkels, Jeroen M. & Samuelson, Larry, 2006. "Information, evolution and utility," Theoretical Economics, Econometric Society, vol. 1(1), pages 119-142, March.
  5. Edward L. Glaeser & David I. Laibson & José A. Scheinkman & Christine L. Soutter, 2000. "Measuring Trust," The Quarterly Journal of Economics, MIT Press, vol. 115(3), pages 811-846, August.
    • Glaeser, Edward Ludwig & Laibson, David I. & Scheinkman, Jose A. & Soutter, Christine L., 2000. "Measuring Trust," Scholarly Articles 4481497, Harvard University Department of Economics.
  6. De Long, J. Bradford & Shleifer, Andrei & Summers, Lawrence H. & Waldmann, Robert J., 1990. "Noise Trader Risk in Financial Markets," Scholarly Articles 3725552, Harvard University Department of Economics.
  7. Butler, Jeff & Giuliano, Paola & Guiso, Luigi, 2009. "The Right Amount of Trust," CEPR Discussion Papers 7461, C.E.P.R. Discussion Papers.
  8. Arthur J. Robson, 2001. "Why Would Nature Give Individuals Utility Functions?," Journal of Political Economy, University of Chicago Press, vol. 109(4), pages 900-929, August.
  9. Kurz, Mordecai, 1994. "On the Structure and Diversity of Rational Beliefs," Economic Theory, Springer, vol. 4(6), pages 877-900, October.
  10. Tabellini, Guido, 2007. "The Scope of Cooperation: Values and incentives," CEPR Discussion Papers 6534, C.E.P.R. Discussion Papers.
  11. Bester, H. & Güth, W., 1994. "Is altruism evolutionarily stable ?," Discussion Paper 1994-103, Tilburg University, Center for Economic Research.
  12. Huck, Steffen & Oechssler, Jorg, 1999. "The Indirect Evolutionary Approach to Explaining Fair Allocations," Games and Economic Behavior, Elsevier, vol. 28(1), pages 13-24, July.
  13. Daron Acemoglu & Victor Chernozhukov & Muhamet Yildiz, 2009. "Fragility of Asymptotic Agreement under Bayesian Learning," Levine's Working Paper Archive 814577000000000139, David K. Levine.
  14. Francois, Patrick, 2008. "Norms and Institution Formation," CEPR Discussion Papers 6735, C.E.P.R. Discussion Papers.
  15. Robson, A.J., 1989. "Efficiency In Evolutionary Games: Darwin, Nash And Secret Handshake," Papers 89-22, Michigan - Center for Research on Economic & Social Theory.
  16. Tore Ellingsen & Magnus Johannesson, 2004. "Promises, Threats and Fairness," Economic Journal, Royal Economic Society, vol. 114(495), pages 397-420, 04.
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