Would You Trust Yourself? On the Long-Run Stability of Reciprocal Trust

Abstract:     
Preferences for reciprocity of the Falk-Fischbacher type are applied to a game of trust. After deriving the reciprocity equilibrium, the evolution of preferences is analysed showing that a medium level of reciprocity is evolutionary stable. If players exhibit different inclinations regarding positive and negative reciprocity, a medium level of positive reciprocity remains stable but negative reciprocity must vanish. In both cases, players should show a level of reciprocity such that they would exactly trust themselves. The evolutionary equilibrium is characterized neither by efficiency (besides perfect information) nor by equity, although equity is used as a reference standard.

Number of Pages in PDF File: 20

Keywords: Trust, Reciprocity, Psychological Games, Indirect Evolution

JEL Classification: C73, D03, D63

working papers series