Trust and Sequential Reciprocity

A growing number of experiments featuring gift exchange consistently reveal that subjects tend to trust each other rather than behave in a purely selfish manner. Although several variants exist, these "trust games" (or "investment games") involve two parties sequentially exchanging gifts in such a way that the first mover's gift (the "investment") is multiplied by some exogenous factor before the second mover decides how much to give back to the first mover. Trust and trustworthiness, as measured in such games, are often explained by reciprocity concerns. In this study we define a psychological game in which reciprocity is explicitly modelled by applying Dufwenberg & Kirchsteiger (2004) theory of sequential reciprocity to the seminal Berg, Dickhaut & McCabe (1995) trust game. We then compute and characterize the sequential reciprocity equilibria of this game