Emergence of trust in the trust game under best experienced payoff dynamics

Srinivas Arigapudi and Ratul Lahkar

Economics Letters, 2024, vol. 236, issue C

Abstract: The subgame perfect equilibrium (SPE) of the trust game is Pareto inferior. In that equilibrium, player 2 will not honor player 1’s trust and hence, player 1 will not trust player 2. We consider a large population version of the trust game. We apply a population game dynamic called the ‘best experienced payoff’ dynamic to this game. We establish conditions under which the SPE outcome in the trust game is unstable under this dynamic. We also show that an outcome where a substantial fraction of agents in population 1 displaying trust and a substantial fraction of agents in population 2 honoring that trust can be globally stable.

Keywords: Trust game; Best experienced payoff dynamics (search for similar items in EconPapers)
JEL-codes: C72 C73 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:236:y:2024:i:c:s0165176524001034

DOI: 10.1016/j.econlet.2024.111620

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