Abstract

http://ssrn.com/abstract=2102528
 
 

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Information, Irrationality and the Evolution of Trust


Michael L. Manapat


Harvard University

Martin A. Nowak


Harvard University

David G. Rand


Yale University

October 29, 2012

Journal of Economic Behavior and Organization, Forthcoming

Abstract:     
Trust is a central component of social and economic interactions among humans. While rational self-interest dictates that "investors" should not be trusting and "trustees" should not be trustworthy in one-shot anonymous interactions, behavioral experiments with the "trust game" have found that people are both. Here we show how an evolutionary framework can explain this seemingly irrational, altruistic behavior. When individuals' strategies evolve in a context in which (1) investors sometimes have knowledge about trustees before transactions occur and (2) trustees compete with each other for access to investors, natural selection can favor both trust and trustworthiness, even in the subset of interactions in which individuals interact anonymously. We investigate the e ffects of investors having \fuzzy minds" and making irrationally large demands, finding that both improve outcomes for investors but are not evolutionarily stable. Furthermore, we often fi nd oscillations in trust and trustworthiness instead of convergence to a socially optimal stable equilibrium, with increasing trustworthiness preceding trust in these cycles. Finally, we show how "partner choice," or competition among trustees in small group settings, can lead to arbitrarily equitable distributions of the game's proceeds. To complement our theoretical analysis, we performed a novel behavioral experiment with a modifi ed version of the trust game. Our evolutionary framework provides an ultimate mechanism - not just a proximate psychological explanation - for the emergence of trusting behavior and can explain why trust and trustworthiness are sometimes stable and other times unstable.

Number of Pages in PDF File: 45

Keywords: trust, evolution, cooperation, reputation

JEL Classification: C7, C72, C73

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Date posted: July 9, 2012 ; Last revised: October 31, 2012

Suggested Citation

Manapat, Michael L. and Nowak, Martin A. and Rand, David G., Information, Irrationality and the Evolution of Trust (October 29, 2012). Journal of Economic Behavior and Organization, Forthcoming. Available at SSRN: http://ssrn.com/abstract=2102528 or http://dx.doi.org/10.2139/ssrn.2102528

Contact Information

Michael L. Manapat
Harvard University ( email )
1875 Cambridge Street
Cambridge, MA 02138
United States
Martin A. Nowak
Harvard University ( email )
1875 Cambridge Street
Cambridge, MA 02138
United States
David G. Rand (Contact Author)
Yale University ( email )
New Haven, CT 06520
United States
HOME PAGE: http://www.DaveRand.org
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