Variable Temptations and Black Mark Reputations / Christina Aperjis, Yali Miao, Richard J. Zeckhauser.

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Aperjis, Christina

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w16423.Publication details: Cambridge, Mass. National Bureau of Economic Research 2010.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: In a world of imperfect information, reputations often guide the sequential decisions to trust and to reward trust. We consider two-player situations where the players meet but once. One player - the truster - decides whether to trust, and the other player - the temptee - has a temptation to betray when trusted. The strength of the temptation to betray may vary from encounter to encounter, and is independently distributed over time and across temptees. We refer to a recorded betrayal as a black mark. We study how trusters and temptees interact in equilibrium when past influences current play only through its effect on certain summary statistics. We first focus on the case that players only condition on the number of black marks of a temptee and study the different equilibria that emerge, depending on whether the trusters, the temptees, or a social planner has the ability to specify the equilibrium. We then show that conditioning on the number of interactions as well as on the number of black marks does not prolong trust beyond black marks alone. Finally, we consider more general summary statistics of a temptee's past and identify conditions under which there exist equilibria where trust is possibly suspended only temporarily.

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Previous	nber w16420 A New Keynesian Perspective on the Great Recession /	nber w16421 Tests of Hypotheses Arising in the Correlated Random Coefficient Model /	nber w16422 The Impact of Education on Health Knowledge /	nber w16423 Variable Temptations and Black Mark Reputations /	nber w16424 The Great Diversification and its Undoing /	nber w16425 Recent Findings on Trade and Inequality /	nber w16426 Give Credit Where Credit Is Due: Tracing Value Added in Global Production Chains /	Next

September 2010.

In a world of imperfect information, reputations often guide the sequential decisions to trust and to reward trust. We consider two-player situations where the players meet but once. One player - the truster - decides whether to trust, and the other player - the temptee - has a temptation to betray when trusted. The strength of the temptation to betray may vary from encounter to encounter, and is independently distributed over time and across temptees. We refer to a recorded betrayal as a black mark. We study how trusters and temptees interact in equilibrium when past influences current play only through its effect on certain summary statistics. We first focus on the case that players only condition on the number of black marks of a temptee and study the different equilibria that emerge, depending on whether the trusters, the temptees, or a social planner has the ability to specify the equilibrium. We then show that conditioning on the number of interactions as well as on the number of black marks does not prolong trust beyond black marks alone. Finally, we consider more general summary statistics of a temptee's past and identify conditions under which there exist equilibria where trust is possibly suspended only temporarily.