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Can Centralized Sanctioning Promote Trust in Social Dilemmas? A Two-Level Trust Game with Incomplete Information

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  • Raymond Yu Wang
  • Cho Nam Ng

Abstract

The problem of trust is a paradigmatic social dilemma. Previous literature has paid much academic attention on effects of peer punishment and altruistic third-party punishment on trust and human cooperation in dyadic interactions. However, the effects of centralized sanctioning institutions on decentralized reciprocity in hierarchical interactions remain to be further explored. This paper presents a formal two-level trust game with incomplete information which adds an authority as a strategic purposive actor into the traditional trust game. This model allows scholars to examine the problem of trust in more complex game theoretic configurations. The analysis demonstrates how the centralized institutions might change the dynamics of reciprocity between the trustor and the trustee. Findings suggest that the sequential equilibria of the newly proposed two-level model simultaneously include the risk of placing trust for the trustor and the temptation of short-term defection for the trustee. Moreover, they have shown that even a slight uncertainty about the type of the newly introduced authority might facilitate the establishment of trust and reciprocity in social dilemmas.

Suggested Citation

  • Raymond Yu Wang & Cho Nam Ng, 2015. "Can Centralized Sanctioning Promote Trust in Social Dilemmas? A Two-Level Trust Game with Incomplete Information," PLOS ONE, Public Library of Science, vol. 10(4), pages 1-14, April.
    • Handle: RePEc:plo:pone00:0124513
    DOI: 10.1371/journal.pone.0124513
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    2. Camerer, Colin & Weigelt, Keith, 1988. "Experimental Tests of a Sequential Equilibrium Reputation Model," Econometrica, Econometric Society, vol. 56(1), pages 1-36, January.
    3. Julius Margolis, 1970. "The Analysis of Public Output," NBER Books, National Bureau of Economic Research, Inc, number marg70-1.
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    Cited by:

    1. Gamba, Astrid & Regner, Tobias, 2019. "Preferences-dependent learning in the centipede game: The persistence of mistrust," European Economic Review, Elsevier, vol. 120(C).

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