Abstract

http://ssrn.com/abstract=296059
 
 

References (23)



 


 



Communicating Trustworthiness


Matthias Blonski


J.W. Goethe University

Daniel A. Probst


University of Mannheim - Department of Economics

September 30, 2008

J.W.Goethe University, Frankfurt, Economics Working Paper

Abstract:     
We investigate the dynamic process of building trust in bilateral social interactions in the context of a repeated game with two-sided incomplete information. Our particular interest regards mutual communication of trustworthiness. The underlying stage-game resembles properties of a ''Continuous Prisoner's Dilemma'' with a continuous action space and the possibility of stealing the opponent's investment. The continuous investment variable corresponds to co-operation and is interpreted as individual level of trust while the defective action is interpreted as \emph{break of trust} which terminates the partnership. Players can be of two different types/discount factors. We demonstrate that there exist two distinctive extensions of the Prisoner's Dilemma to continuous action spaces differing in the incentives to invest if both parties co-operate.

We then study efficient mutual communication of trustworthiness for both incentive structures in a unified framework and characterize the Pareto frontier of types' payoffs. Efficient equilibria display a typical pattern consisting of three phases.

First, in the Communication Phase information about the respective opponent's type is transmitted, after which in the Adjustment Phase stakes grow over time until in the Established Phase partners behave stationary as under complete information. Efficient communication of trustworthiness takes two forms depending on incentives. We further characterize rapid trust enhancement where the adjustment phase vanishes. Efficient adjustment of stakes is governed by the impatience of the low type.

There are cases where all players do strictly better than in a corresponding game with complete information. Conceptually, trust formation itself may be valuable instead of costly.

Number of Pages in PDF File: 45

Keywords: trust, gradualism, repeated games, incomplete information

JEL Classification: C72, D82, D83

working papers series


Download This Paper

Date posted: January 10, 2002 ; Last revised: October 1, 2008

Suggested Citation

Blonski, Matthias and Probst, Daniel A., Communicating Trustworthiness (September 30, 2008). J.W.Goethe University, Frankfurt, Economics Working Paper. Available at SSRN: http://ssrn.com/abstract=296059 or http://dx.doi.org/10.2139/ssrn.296059

Contact Information

Matthias Blonski (Contact Author)
J.W. Goethe University ( email )
Economics Department
Frankfurt am Main, 60054
Germany
Daniel A. Probst
University of Mannheim - Department of Economics ( email )
D-68131 Mannheim
Germany
+49 621 181 1833 (Phone)
+49 621181 1037 (Fax)
Feedback to SSRN


Paper statistics
Abstract Views: 1,566
Downloads: 260
Download Rank: 66,049
References:  23

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo8 in 0.297 seconds