Sudden Trust Collapse in Networked Societies

Eur. Phys. J. B 88 (3) 55 (2015)

15 Pages Posted: 23 Sep 2014 Last revised: 17 Mar 2015

Date Written: September 22, 2014

Abstract

Trust is a collective, self-fulfilling phenomenon that suggests analogies with phase transitions. We introduce a stylized model for the build-up and collapse of trust in networks, which generically displays a first order transition. The basic assumption of our model is that whereas trust begets trust, panic also begets panic, in the sense that a small decrease in trust may be amplified and ultimately lead to a sudden and catastrophic drop of trust. We show, using both numerical simulations and mean-field analytic arguments, that there are extended regions of the parameter space where two equilibrium states coexist: a well-connected network where confidence is high, and a poorly connected network where confidence is low. In these coexistence regions, spontaneous jumps from the well-connected state to the poorly connected state can occur, corresponding to a sudden collapse of trust that is not caused by any major external catastrophe. In large systems, spontaneous crises are replaced by history dependence: whether the system is found in one state or in the other essentially depends on initial conditions. Finally, we document a new phase, in which agents are connected yet distrustful.

Keywords: trust, networks, sudden collapse, collective behavior, crisis, hysteresis, phase transition

JEL Classification: C1, G1, E5

Suggested Citation

da Gama Batista, João and Bouchaud, Jean-Philippe and Challet, Damien, Sudden Trust Collapse in Networked Societies (September 22, 2014). Eur. Phys. J. B 88 (3) 55 (2015), Available at SSRN: https://ssrn.com/abstract=2499642 or http://dx.doi.org/10.2139/ssrn.2499642

João da Gama Batista (Contact Author)

CentraleSupélec ( email )

Labo M.A.S
Grande Voie des Vignes
Châtenay-Malabry CEDEX, 92295
France

Jean-Philippe Bouchaud

Capital Fund Management ( email )

23 rue de l'Université
Paris, 75007
France
+33 1 49 49 59 20 (Phone)

Damien Challet

CentraleSupélec ( email )

Labo MICS
3, rue Joliot-Curie
Gif-sur-Yvette, 91192
France

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