TRUST AND FINANCIAL TRADES: LESSONS FROM AN INVESTMENT GAME WHERE RECIPROCATORS CAN HIDE BEHIND PROBABILITIES
Radu Vranceanu, Angela Sutan, Delphine Dubart

In this paper we show that if a very small, exogenously given probability of terminating the exchange is introduced in an elementary investment game, reciprocators play more often the defection strategy. Everything happens as if they "hide behind probabilities" in order to break the trust relationship. Investors do no not seem able to internalize the reciprocators’ change in behavior. This could explain why trades involving an exogenous risk of value destruction, such as financial transactions, provide an unfavorable environment for trust-building.

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Delphine Dubart,
Aug 17, 2011, 5:10 AM