Trust, Introspection, and Market Participation: An Evolutionary Approach

32 Pages Posted: 1 Jul 2009

See all articles by Fabrizio Adriani

Fabrizio Adriani

SOAS University of London

Silvia Sonderegger

University of Bristol - Department of Economics

Date Written: June 29, 2009

Abstract

We build a model where introspection matters - i.e., people rationally form expectations about others using the lens of their own attitudes. Since trustworthy individuals are more "optimistic" about people than opportunists, they are less afraid to engage in market-based exchanges, where they may be vulnerable to opportunistic behavior. Within this context, we use an indirect evolutionary approach to endogenize preferences for trustworthiness. In some cases, the material rewards from greater market participation may outweigh the material disadvantages from foregoing lucrative expropriation opportunities. This implies that trustworthiness may be evolutionary stable in the long-term. Although stricter enforcement (that limits the scope for opportunistic behavior) does in some cases favor preferences for trustworthy behavior (crowding in) we show that the opposite (crowding out) may also occur. Our findings are consistent with recent empirical evidence.

Keywords: Endogenous Preferences, Trust, Introspection, Institutions, Enforcement, Crowding Out

JEL Classification: C73, D02, D81, D82, Z1

Suggested Citation

Adriani, Fabrizio and Sonderegger, Silvia, Trust, Introspection, and Market Participation: An Evolutionary Approach (June 29, 2009). Available at SSRN: https://ssrn.com/abstract=1427530 or http://dx.doi.org/10.2139/ssrn.1427530

Fabrizio Adriani (Contact Author)

SOAS University of London ( email )

Thornhaugh Street
Russell Square: College Buildings 541
London, WC1H 0XG
United Kingdom

Silvia Sonderegger

University of Bristol - Department of Economics ( email )

8 Woodland Road
Bristol BS8 ITN
United Kingdom

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