Trust as a booster

Abstract

According to Yamagishi (2011) trust can be viewed as a “booster rocket” that provides the necessary push for the take-off from the secure ground of committed relations. The aim of this paper is to formalize this idea. I look at a situation where networks of personalized exchange relationships provide assurance against untrustworthy behavior but reduce the opportunity to profit from trade in larger markets. With the help of a simple game theoretic model I show that mutual trust relations can emerge in anonymous markets, even when there is a clear danger of opportunism and the possibility of repeated interaction is ruled out.