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Trust, Introspection, and Market Participation: an Evolutionary Approach

  • Adriani, Fabrizio
  • Sonderegger, Silvia

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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File URL: http://mpra.ub.uni-muenchen.de/16110/1/MPRA_paper_16110.pdf
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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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  1. Jeffrey Butler & Paola Giuliano & Luigi Guiso, 2010. "The Right Amount of Trust," Working Papers 2010.61, Fondazione Eni Enrico Mattei.
  2. Bester, Helmut & Guth, Werner, 1998. "Is altruism evolutionarily stable?," Journal of Economic Behavior & Organization, Elsevier, vol. 34(2), pages 193-209, February.
  3. Swinkels, Jeroen M. & Samuelson, Larry, 2006. "Information, evolution and utility," Theoretical Economics, Econometric Society, vol. 1(1), pages 119-142, March.
  4. De Long, J Bradford & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann, 1990. "Noise Trader Risk in Financial Markets," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 703-38, August.
  5. Daron Acemoglu & Victor Chernozhukov & Muhamet Yildiz, 2009. "Fragility of Asymptotic Agreement under Bayesian Learning," Levine's Working Paper Archive 814577000000000139, David K. Levine.
  6. Guido Tabellini, 2008. "The Scope of Cooperation: Values and Incentives," The Quarterly Journal of Economics, MIT Press, vol. 123(3), pages 905-950, August.
  7. Sapienza, Paola & Toldra Simats, Anna & Zingales, Luigi, 2007. "Understanding Trust," CEPR Discussion Papers 6462, C.E.P.R. Discussion Papers.
  8. Francois, Patrick, 2008. "Norms and Institution Formation," CEPR Discussion Papers 6735, C.E.P.R. Discussion Papers.
  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.
  10. S. Huck & J. Oechssler, 1996. "The Indirect Evolutionary Approach To Explaining Fair Allocations," SFB 373 Discussion Papers 1996,13, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  11. 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.
  12. Kurz, Mordecai, 1994. "On the Structure and Diversity of Rational Beliefs," Economic Theory, Springer, vol. 4(6), pages 877-900, October.
  13. 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.
  14. 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.
  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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