Trust and cooperation among economic agents

Abstract

The units that are subject to selection pressure in evolutionary biology are 'strategies', which are conditional actions ('Do P if X occurs, otherwise do Q'). In contrast, the units in economics select strategies from available menus so as to further their projects and purposes. As economic agents do not live in isolation, each agent's optimum choice, in general, depends on the choices made by others. Because their projects and purposes involve the future, not just the present, each agent reasons about the likely present and future consequences of their respective choices. That is why beliefs, about what others may do and what the consequences of those choices could be, are at the basis of strategy selection. A catalogue of social environments is constructed in which agents not only promise each other's cooperation, but also rationally believe that the promises will be kept. Unfortunately, non-cooperation arising from mistrust can be the outcome in those same environments: societies harbour multiple 'equilibria' and can skid from cooperation to noncooperation. Moreover, a pre-occupation among analysts with the Prisoners' Dilemma game has obscured the fact that cooperative arrangements can harbour not only inequality, but also exploitation. The analysis is used to discuss why international cooperation over the use of global public goods has proved to be so elusive. © 2009 The Royal Society.