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When is Trust Robust?

Author

Listed:
  • Luca Anderlini
  • Larry Samuelson
  • Daniele Terlizzese

Abstract

We examine an economy in which interactions are more productive if agents can trust others to refrain from cheating. Some agents are scoundrels, who cheat at every opportunity, while others cheat only if the cost of cheating, a decreasing function of the proportion of cheaters, is sufficiently low. The economy exhibits multiple equilibria. As the proportion of scoundrels in the economy declines, the high-trust equilibrium can be disrupted by arbitrarily small perturbations or by arbitrarily small infusions of low-trust agents, while the low-trust equilibrium becomes impervious to perturbations and infusions of high-trust agents. Scoundrels may thus have the effect of making trust more robust.

Suggested Citation

  • Luca Anderlini & Larry Samuelson & Daniele Terlizzese, 2024. "When is Trust Robust?," Papers 2403.12917, arXiv.org, revised Nov 2024.
    • Handle: RePEc:arx:papers:2403.12917
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    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C79 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Other
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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