Reciprocity and the Paradox of Trust in psychological game theory

Isoni, Andrea and Sugden, Robert (2018) Reciprocity and the Paradox of Trust in psychological game theory. Journal of Economic Behavior & Organization. ISSN 0167-2681

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      Rabin's psychological game-theoretic model of ‘fairness’ has been the starting point for a literature about preferences for reciprocity. In this literature, reciprocity is modelled by defining an individual's ‘kindness’ or ‘unkindness’ in terms of the consequences of his actions for others, and assuming a motivation to reward (punish) other people's kindness (unkindness). Contrary to intuition, this form of reciprocity cannot explain mutually beneficial trust and trustworthiness in a simple Trust Game. We formalise and offer a diagnosis of this ‘Paradox of Trust’. We distinguish between two kinds of reciprocity. Rabin's concept of reciprocal kindness is a psychologically plausible motivation, and the paradox is an informative result about the implications of this motivation. However, trust is better understood in terms of reciprocal cooperation – the motivation to play one's part in mutually beneficial practices, conditional on others playing their parts. We show that a theory of reciprocal cooperation can avoid the paradox.

      Item Type: Article
      Uncontrolled Keywords: reciprocity,paradox of trust,kindness,cooperation,psychological game theory,mutual benefit
      Faculty \ School: Faculty of Social Sciences > School of Economics
      Depositing User: Pure Connector
      Date Deposited: 20 Apr 2018 14:31
      Last Modified: 09 Apr 2019 13:16
      DOI: 10.1016/j.jebo.2018.04.015

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