Trust and Strategic Rationality

Abstract

The extent to which trust prevails can be measured by the subjective probability with which an agent expects another one to act in desired ways. An agent's trust in other agents forms during repeated social interactions that typically have the structure of an elementary game of trust. The process of trust formation in such interactions can be described by a reputation function. It is argued that in view of real-world processes of trust formation, any adequate reputation function must satisfy certain conditions. A simple model conforming to these conditions is presented. Analyzing this example, it is shown that there is a cooperative Nash equilibrium in a trust supergame, which is in accordance with the basic conditions of realistic trust formation. However, it is also proved that no process of trust formation, can be reasonably similar to real-world mechanisms and at the same time lead to subgame perfect equilibria in a trust supergame.