Agent based modeling of trust between firms in markets

Abstract

In this paper the methodology of Agent-Based Computational Economics (ACE) is used to explore under what conditions trust is viable in markets. The emergence and breakdown of trust is modeled in a context of multiple buyers and suppliers. Agents develop trust in a partner as a function of observed loyalty. They select partners on the basis of their trust in the partner and potential profit. On the basis of realized profits, they adapt the weight they attach to trust relative to profitability, and their own trustworthiness, modeled as a threshold of defection. Trust turns out to be viable under fairly general conditions. © 2006 Springer-Verlag Berlin Heidelberg.