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Trust, Introspection, and Market Participation: an Evolutionary Approach

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Author Info
Adriani, Fabrizio
Sonderegger, Silvia

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

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Find related papers by JEL classification:
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
D02 - Microeconomics - - General - - - Institutions: Design, Formation, and Operations
Z13 - Other Special Topics - - Cultural Economics - - - Social Norms and Social Capital; Social Networks Economic Anthropology
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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References listed on IDEAS
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  1. Guido Tabellini, 2008. "The Scope of Cooperation: Values and Incentives," The Quarterly Journal of Economics, MIT Press, vol. 123(3), pages 905-950, August. [Downloadable!] (restricted)
    Other versions:
  2. Robson, A.J., 1989. "Efficiency In Evolutionary Games: Darwin, Nash And Secret Handshake," Papers 89-22, Michigan - Center for Research on Economic & Social Theory.
  3. 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. [Downloadable!] (restricted)
    Other versions:
  4. Kurz, Mordecai, 1994. "On the Structure and Diversity of Rational Beliefs," Economic Theory, Springer, vol. 4(6), pages 877-900, October.
  5. Butler, Jeff & Giuliano, Paola & Guiso, Luigi, 2009. "The Right Amount of Trust," CEPR Discussion Papers 7461, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  6. Bester, Helmut & Guth, Werner, 1998. "Is altruism evolutionarily stable?," Journal of Economic Behavior & Organization, Elsevier, vol. 34(2), pages 193-209, February. [Downloadable!] (restricted)
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  7. Daron Acemoglu & Victor Chernozhukov & Muhamet Yildiz, 2009. "Fragility of Asymptotic Agreement under Bayesian Learning," Levine's Working Paper Archive 814577000000000139, David K. Levine. [Downloadable!]
  8. Butler, Jeffrey V. & Giuliano, Paola & Guiso, Luigi, 2009. "The Right Amount of Trust," IZA Discussion Papers 4416, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  9. 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. [Downloadable!] (restricted)
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