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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.

Suggested Citation

  • 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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    Cited by:

    1. John Duffy & Huan Xie & Yong-Ju Lee, 2013. "Social norms, information, and trust among strangers: theory and evidence," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 52(2), pages 669-708, March.
    2. John Duffy & Huan Xie, 2012. "Group Size and Cooperation Among Strangers," Working Paper 495, Department of Economics, University of Pittsburgh, revised Jan 2012.
    3. Timothy Cason & Sau-Him Lau & Vai-Lam Mui, 2013. "Learning, teaching, and turn taking in the repeated assignment game," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 54(2), pages 335-357, October.
    4. Berger, Ulrich, 2016. "Learning to trust, learning to be trustworthy," Department of Economics Working Paper Series 212, WU Vienna University of Economics and Business.
    5. Duffy, John & Xie, Huan, 2016. "Group size and cooperation among strangers," Journal of Economic Behavior & Organization, Elsevier, vol. 126(PA), pages 55-74.
    6. Chen, Jidong & Liu, Shenglong & Zhang, Xiaoming & Zhou, Xingyu, 2023. "Building social trust through education," China Economic Review, Elsevier, vol. 82(C).

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    Keywords

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    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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