We study the development of a social norm of trust and reciprocity in the infinitely repeated binary trust games where a finite number of players are randomly and anonymously matched to play the stage game each period. Following Kandori (1992), we show that the social norm of trust and reciprocity can be sustained by self-interested community members in a sequential equilibrium, in which a player only trusts or reciprocates if he has never experienced defection of others or of his own in history. Sufficient conditions that support the social norm of trust and reciprocity as a sequential equilibrium are provided.
Trust and Reciprocity, Infinitely Repeated Game, Contagious Strategy, Random Matching
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