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Trust is bound to emerge (In the repeated Trust Game)

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  • Luciano Andreozzi

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Abstract

This paper addresses the emergence of cooperation in asymmetric pris- oners' dilemmas in which one player chooses after having observed the other player's choice (Trust Game). We use the finite automata approach with complexity costs to study the equilibria of the repeated version of this game. We show that there is a small set of automata that form the unique Closed Under Rational Behavior (CURB) set for this game. This set contains two non-strict Nash equilibria, a cooperative and a non- cooperative one. We show that the cooperative equilibrium is the only (cyclically) stable set under the so called Best Response Dynamics.

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Bibliographic Info

Paper provided by Department of Economics, University of Trento, Italia in its series Department of Economics Working Papers with number 1008.

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Date of creation: 2010
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Handle: RePEc:trn:utwpde:1008

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  1. Samuelson, Larry & Swinkels, Jeroen M., 2003. "Evolutionary stability and lexicographic preferences," Games and Economic Behavior, Elsevier, Elsevier, vol. 44(2), pages 332-342, August.
  2. Ulrich Berger, 2002. "Best response dynamics for role games," International Journal of Game Theory, Springer, Springer, vol. 30(4), pages 527-538.
  3. Gilboa, Itzhak & Matsui, Akihiko, 1991. "Social Stability and Equilibrium," Econometrica, Econometric Society, Econometric Society, vol. 59(3), pages 859-67, May.
  4. Matsui, Akihiko, 1992. "Best response dynamics and socially stable strategies," Journal of Economic Theory, Elsevier, Elsevier, vol. 57(2), pages 343-362, August.
  5. Cooper, David J., 1996. "Supergames Played by Finite Automata with Finite Costs of Complexity in an Evolutionary Setting," Journal of Economic Theory, Elsevier, Elsevier, vol. 68(1), pages 266-275, January.
  6. Basu, Kaushik & Weibull, Jorgen W., 1991. "Strategy subsets closed under rational behavior," Economics Letters, Elsevier, Elsevier, vol. 36(2), pages 141-146, June.
  7. Banks, Jeffrey S. & Sundaram, Rangarajan K., 1990. "Repeated games, finite automata, and complexity," Games and Economic Behavior, Elsevier, Elsevier, vol. 2(2), pages 97-117, June.
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