Evolution of Honesty and Trust among Strangers

32 Pages Posted: 19 Sep 2017 Last revised: 30 Jun 2018

Prateek Raj

University College London - School of Management; University of Chicago - George J. Stigler Center for the Study of the Economy and the State

Date Written: July 21, 2018

Abstract

I study the trade-off between relationship-based and impersonal exchanges. I model an economy where trade with strangers is voluntary, anonymous, one-shot, and self- interested. Traders follow ethical routines that are sticky and evolutionarily compete. I find that under a narrow set of conditions trust and honesty among strangers can emerge when there is 1) a high benefit from engaging with strangers (utility condition), and 2) a threshold adoption of standardized business routines that reduced partiality in business (threshold condition). If the above conditions hold, impersonal institutions can emerge. Cycles of trust, dishonesty, distrust, and honesty can sustain impersonal exchange.

Keywords: trust, routines, punctuated equilibrium, institutions, culture, evolution, Europe

JEL Classification: A13, A14, C73, N93, Z13

Suggested Citation

Raj, Prateek, Evolution of Honesty and Trust among Strangers (July 21, 2018). Available at SSRN: https://ssrn.com/abstract=3033861 or http://dx.doi.org/10.2139/ssrn.3033861

Prateek Raj (Contact Author)

University College London - School of Management ( email )

Gower Street
London, WC1E 6BT
United Kingdom

University of Chicago - George J. Stigler Center for the Study of the Economy and the State ( email )

Walker Hall
Chicago, IL 60637
United States

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