Would You Trust Yourself? On the Long-Run Stability of Reciprocal Trust

Abstract

Preferences for reciprocity of the Falk-Fischbacher type are applied to a game of trust. After deriving the reciprocity equilibrium, the evolution of preferences is analysed showing that a medium level of reciprocity is evolutionary stable. If players exhibit different inclinations regarding positive and negative reciprocity, a medium level of positive reciprocity remains stable but negative reciprocity must vanish. In both cases, players should show a level of reciprocity such that they would exactly trust themselves. The evolutionary equilibrium is characterized neither by efficiency (besides perfect information) nor by equity, although equity is used as a reference standard.