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Social Norms and Trust among Strangers

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Abstract

We study the development of a social norm of trust and reciprocity among strangers in the infinitely repeated binary trust games. Players are anonymous and interact at randomly determined times. Following Kandori (1992), we show that the social norm of trust and reciprocity can be sustained in a sequential equilibrium when self-interested community members employ the contagious strategy. In order to provide the investors with proper incentives to follow the contagious strategy, the sufficient condition requires that there should exist an outside option for the investors and the payoff from the outside option should converge to the payoff from trust and reciprocity when the community size goes to infinity. We further show that this sufficient condition is also a necessary condition to sustain any sequential equilibrium in which the trustees employ the contagious strategy. Our results imply that the extension of the contagious equilibrium from the Prisoner's dilemma game to other classes of games such as trust game is very limited.

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  • Huan Xie & Yong-Ju Lee, 2008. "Social Norms and Trust among Strangers," Working Papers 08006, Concordia University, Department of Economics, revised May 2011.
  • Handle: RePEc:crd:wpaper:08006
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    1. Kreps, David M & Wilson, Robert, 1982. "Sequential Equilibria," Econometrica, Econometric Society, vol. 50(4), pages 863-894, July.
    2. Glenn Ellison, 1994. "Cooperation in the Prisoner's Dilemma with Anonymous Random Matching," Review of Economic Studies, Oxford University Press, vol. 61(3), pages 567-588.
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    7. Okuno-Fujiwara Masahiro & Postlewaite Andrew, 1995. "Social Norms and Random Matching Games," Games and Economic Behavior, Elsevier, vol. 9(1), pages 79-109, April.
    8. Michihiro Kandori, 1992. "Social Norms and Community Enforcement," Review of Economic Studies, Oxford University Press, vol. 59(1), pages 63-80.
    9. Duffy, John & Ochs, Jack, 2009. "Cooperative behavior and the frequency of social interaction," Games and Economic Behavior, Elsevier, vol. 66(2), pages 785-812, July.
    10. Gabriele Camera & Marco Casari, 2009. "Cooperation among Strangers under the Shadow of the Future," American Economic Review, American Economic Association, vol. 99(3), pages 979-1005, June.
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    Cited by:

    1. Ulrich Berger, 2016. "Learning to trust, learning to be trustworthy," Department of Economics Working Papers wuwp212, Vienna University of Economics and Business, Department of Economics.
    2. Duffy, John & Xie, Huan, 2016. "Group size and cooperation among strangers," Journal of Economic Behavior & Organization, Elsevier, vol. 126(PA), pages 55-74.
    3. Berger, Ulrich, 2016. "Learning to trust, learning to be trustworthy," Department of Economics Working Paper Series 4806, WU Vienna University of Economics and Business.

    More about this item

    Keywords

    Trust and Reciprocity; Infinitely Repeated Game; Random Matching; Contagious Strategy; Sequential Equilibrium;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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