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Trust is bound to emerge (In the repeated Trust Game)

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  • Luciano Andreozzi

Abstract

This paper addresses the emergence of cooperation in asymmetric pris- oners' dilemmas in which one player chooses after having observed the other player's choice (Trust Game). We use the finite automata approach with complexity costs to study the equilibria of the repeated version of this game. We show that there is a small set of automata that form the unique Closed Under Rational Behavior (CURB) set for this game. This set contains two non-strict Nash equilibria, a cooperative and a non- cooperative one. We show that the cooperative equilibrium is the only (cyclically) stable set under the so called Best Response Dynamics.

Suggested Citation

  • Luciano Andreozzi, 2010. "Trust is bound to emerge (In the repeated Trust Game)," Department of Economics Working Papers 1008, Department of Economics, University of Trento, Italia.
    • Handle: RePEc:trn:utwpde:1008
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    References listed on IDEAS

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    1. Ulrich Berger, 2002. "Best response dynamics for role games," International Journal of Game Theory, Springer;Game Theory Society, vol. 30(4), pages 527-538.
    2. Samuelson, Larry & Swinkels, Jeroen M., 2003. "Evolutionary stability and lexicographic preferences," Games and Economic Behavior, Elsevier, vol. 44(2), pages 332-342, August.
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    4. Banks, Jeffrey S. & Sundaram, Rangarajan K., 1990. "Repeated games, finite automata, and complexity," Games and Economic Behavior, Elsevier, vol. 2(2), pages 97-117, June.
    5. Gilboa, Itzhak & Matsui, Akihiko, 1991. "Social Stability and Equilibrium," Econometrica, Econometric Society, vol. 59(3), pages 859-867, May.
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    7. Cooper, David J., 1996. "Supergames Played by Finite Automata with Finite Costs of Complexity in an Evolutionary Setting," Journal of Economic Theory, Elsevier, vol. 68(1), pages 266-275, January.
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    More about this item

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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