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Trust, Introspection, and Market Participation: an Evolutionary Approach

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  • Adriani, Fabrizio
  • Sonderegger, Silvia

Abstract

We build a model where introspection matters - i.e., people rationally form expectations about others using the lens of their own attitudes. Since trustworthy individuals are more "optimistic" about people than opportunists, they are less afraid to engage in market-based exchanges, where they may be vulnerable to opportunistic behavior. Within this context, we use an indirect evolutionary approach to endogenize preferences for trustworthiness. In some cases, the material rewards from greater market participation may outweigh the material disadvantages from foregoing lucrative expropriation opportunities. This implies that trustworthiness may be evolutionary stable in the long-term. Although stricter enforcement (that limits the scope for opportunistic behavior) does in some cases favor preferences for trustworthy behavior (crowding in) we show that the opposite (crowding out) may also occur. Our findings are consistent with recent empirical evidence.

Suggested Citation

  • Adriani, Fabrizio & Sonderegger, Silvia, 2009. "Trust, Introspection, and Market Participation: an Evolutionary Approach," MPRA Paper 16110, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:16110
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    References listed on IDEAS

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    More about this item

    Keywords

    Endogenous Preferences; Trust; Introspection; Institutions; Enforcement; Crowding Out;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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