Reciprocity and Trust: Personality Psychology meets Behavioral Economics

We propose a model of strong reciprocity and trust that combines elements of personality psychology and behavioral economics. In the model, positive reciprocity and negative reciprocity are components of individual utility functions, while trust is an individual bias that distorts the beliefs about the trustworthiness of others. Underlying personality traits determine the functional form of the utility functions and the magnitude of the biases. We tested the model by means of an economic experiment, using 212 college students as experimental subjects. First, each subject completed a psychometric questionnaire to measure his levels of positive reciprocity, negative reciprocity, and trust. Following this, the subjects played 65 rounds of a sequential prisoner's dilemma with random re-matching and payoffs that changed from round to round. From the game behavior of each subject we estimated his utility function and the bias in his beliefs. The experimental results support the hypotheses of the model; the psychometric measures of reciprocity determined the individual utility functions, while the psychometric measures of trust determined the individual biases.