Trust and Culture
International Game Theory Review (IGTR), 2009
Posted: 10 Jun 2010
Date Written: June 1, 2009
Large populations can gain from economies of scale but lose internal trust due to diluted information. This creates an optimal group size. However, trusting strangers who claim to be members invites outsiders to disguise as insiders and abuse extended trust. Thus, if cultural diversity can raise the imitation cost it can promote cooperation. Even so, however, scale economies are lost when the population subdivides and the cultural boundaries may have to be enforced to prevent assimilation. The model is consistent with norms against inter-cultural marriage and episodic boundary-reinforcing conflict where formal institutions for contract enforcement are weak.
Keywords: Culture, social capital, repeated prisoners' dilemma
JEL Classification: D82, D86, O17
Suggested Citation: Suggested Citation