Social norms and trust among strangers

Huan Xie and Yong-Ju Lee

Games and Economic Behavior, 2012, vol. 76, issue 2, 548-555

Abstract: We study the development of a social norm of trust and reciprocity among a group of strangers via the “contagious strategy” as defined in Kandori (1992). Over an infinite horizon, the players anonymously and randomly meet each other and play a binary trust game. In order to provide the investors with proper incentives to follow the contagious strategy, there is a sufficient condition that requires that there exists an outside option for the investors. Moreover, the investorsʼ payoff from the outside option must converge to the payoff from trust and reciprocity as the group size goes to infinity. We show that this sufficient condition is also a necessary condition to sustain any sequential equilibrium in which the trustees adopt the contagious strategy. Our results imply that a contagious equilibrium only supports trust if trust contributes almost nothing to the investorsʼ payoffs.

Keywords: Trust and reciprocity; Infinitely repeated game; Random matching; Contagious strategy; Sequential equilibrium (search for similar items in EconPapers)
JEL-codes: C72 C73 D83 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Working Paper: Social Norms and Trust among Strangers (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:76:y:2012:i:2:p:548-555

DOI: 10.1016/j.geb.2012.07.010

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