The Role of Social Esteem in the Trust Game With Preemptive Signaling

Abstract

Principal-agent interactions in which the agent can preemptively signal prosociality can achieve higher levels of trust and reciprocity if both parties care about social esteem (Boulu-Reshef and Kuechle, 2023). However, it is unclear to what extent social esteem is necessary for this outcome. In this paper, we consider three versions of the trust game and show that, in the absence of social esteem, a separating equilibrium requires that players attach more importance to other players' payoffs than to their own payoffs, which is neither theoretically nor empirically sound. Furthermore, in the absence of social esteem, the separating equilibrium breaks down even when players are extremely altruistic, unless the signals available to the agent are very costly.

Keywords: Trust, Trustworthiness, Trust game, Signaling, Social esteem

JEL Classification: D01, D64 D82