Network-Based Trust Games: An Agent-Based Model

Abstract

By hybridizing two kinds of games frequently used in experimental economics, namely, trust games and network games, this paper develops a model of the network-based trust game. Through agent-based simulation of the model, we can demonstrate the positive effects of trust on growth. Even though the underlying technology still provides the fundamental channel for growth, there is an indirect effect on growth through network formation. It is in this network formation process that trust plays a role. The trust considered in this paper is a kind of myopic trust which, through the stochastic choice model, can affect agents` decisions regarding networking, portfolios, and kickbacks, which in turn affects network formation, wealth creation, and distribution.