Building Trust: The Costs and Benefits of Gradualism

73 Pages Posted: 9 Feb 2019 Last revised: 24 Nov 2020

See all articles by Melis Kartal

Melis Kartal

Vienna University of Economics and Business

Wieland Müller

University of Vienna, Department of Economics & VCEE; Tilburg University, Department of Economics & CentER

James Tremewan

Date Written: November 19, 2020

Abstract

We examine the prevalence of gradualist strategies and their effect on trust-building and economic gains in a setting with an infinite horizon, asymmetric information regarding the trustworthiness of receivers, and various levels of trust. The theoretical literature suggests that gradualist strategies mitigate asymmetric information problems and foster trust-building. However, we theoretically and experimentally show that gradualism sometimes reduces joint payoffs relative to a simple "binary" setting in which trust is an all-or-nothing decision. In a series of experiments, we vary the degree of asymmetric information as well as the economic returns to trusting behavior, and we delineate circumstances under which gradualism may promote or curb efficiency.

Keywords: cooperation, trust, infinitely repeated games, gradualism, game theory, experiments

JEL Classification: C73, C91, C92, D82, D83

Suggested Citation

Kartal, Melis and Müller, Wieland and Tremewan, James, Building Trust: The Costs and Benefits of Gradualism (November 19, 2020). Available at SSRN: https://ssrn.com/abstract=3324993 or http://dx.doi.org/10.2139/ssrn.3324993

Melis Kartal

Vienna University of Economics and Business ( email )

Vienna, 1020
Austria

HOME PAGE: http://homepage.univie.ac.at/melis.kartal/

Wieland Müller (Contact Author)

University of Vienna, Department of Economics & VCEE ( email )

Oskar-Morgenstern-Platz 1
Vienna, A-1090
Austria

HOME PAGE: http://https://homepage.univie.ac.at/wieland.mueller/

Tilburg University, Department of Economics & CentER ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

HOME PAGE: http://www.tilburguniversity.edu/webwijs/show/w.mueller-3.htm

No contact information is available for James Tremewan

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