Trust and Trustworthiness in an Economy with Heterogeneous Individuals

Abstract

We analyze the determinants of trust and trustworthiness in a matching equilibrium when agents have heterogeneous predispositions towards trusting and trustworthy behavior, there is transmission of information via both individual and collective reputations, and successful matches may persist. In new matches, more trustworthiness breeds more trust. However, whether more trust breeds more or less trustworthiness depends on the observability of individual histories of play. If it is low, more trust generally breeds less trustworthiness, while if it is high, more trust breeds more trustworthiness. We combine the links between trust and trustworthiness to construct a general trust/trustworthiness equilibrium and discuss its properties.

Keywords: Trust, trustworthiness, reputation