Building Trust: The Costs and Benefits of Gradualism

80 Pages Posted: 9 Feb 2019

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

University of Auckland - Department of Economics

Date Written: January 24, 2019

Abstract

To study the development of trust, we examine a setting with an infinite horizon, uncertainty regarding the trustworthiness of receivers, and various levels of trust. In equilibrium, senders gradually increase trust levels with reciprocating receivers. We find strong experimental evidence of such gradualist strategies. However, comparing this setting to one in which trust is an all-or-nothing decision, we find --- in stark contrast to theory --- that the latter leads to more efficient outcomes. In a series of follow-up experiments, we highlight the role of homemade beliefs and identify circumstances in which gradual strategies are not only used but also more efficient.

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 (January 24, 2019). 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

James Tremewan

University of Auckland - Department of Economics ( email )

Auckland
New Zealand

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