Cheating tempts traders while cooperation yields shared gains.

Evidence

To represent the idea that cheating may be profitable in a simple exchange, we use the Prisoners’ Dilemma (PD) game as our model of a single exchange transaction. Although this PD model is too simple to portray the richness of even simple contracts, it has the advantage that it is very well known and its characteristics in the absence of institutions have been thoroughly studied, so that the incremental contribution made by the Law Merchant system will be quite clear. Moreover, the PD game represents in an uncluttered way the basic facts that traders have opportunities and temptations to cheat and that there are gains possible if the traders can suppress these temptations and find a way to cooperate. — PAUL R. MILGRO, PAUL R. MILGRO - THE ROLE OF…, 42

Categorization

• DEFINE: Frames the Prisoners’ Dilemma as the baseline model against which the Law Merchant institution’s contribution will be measured — a clean understanding of why PD is the right null model for historical trade.
• XREF: connects to: A continuing relationship functions as a bond deterring dishonest trading; Cooperation can occur without trust when incentives align; Pervasive distrust is stable because solo cooperation invites exploitation (+13 more)

Related

• One-shot trade games yield cheating as the unique equilibrium. (similarity 0.86)
• Cooperation can survive even when cheating pays seven times more per round. (similarity 0.83)
• State unreliability cascades into mutual distrust that blocks cooperation (similarity 0.81)
• Cooperation is stabilized either by punishing cheaters or by exiting to new partners. (similarity 0.81)
• Cooperation survives even when cheating pays hugely and system costs are steep. (similarity 0.80)
• Cooperation norms persist through credible punishment of defectors. (similarity 0.80)
• Cooperative market norms can be stable equilibria even amid free-rider incentives (similarity 0.79)
• Cost-driven market ties evolve into trust-laden partnerships over time (similarity 0.79)
• Repeated trade with a high discount factor enables cooperative equilibria. (similarity 0.79)

Broader Connections

• Reciprocal trust creates mutual incentives for trustworthiness #expands (0.85) — Nicolas Baumard, A mutualistic approach to morality, 166
• Trust is a result rather than a precondition of cooperation #corroborates (0.85) — Diego Gambetta, Trust - Making and Breaking Cooperative…, 2781
• A cheater’s success depends on parasitizing a trustworthy system #expands (0.85)
• Cooperation can occur without trust when incentives align #expands (0.80)
• Mutual trust in iterated exchange is selffulfilling through aligned incentives #corroborates (0.80)
• Cooperation can operate independently of trust #corroborates (0.80)
• Trust requires both freedom to defect and constraints that make cooperation attractive #expands (0.80)
• Pervasive distrust is stable because solo cooperation invites exploitation #contradicts (0.75)
• Groups induce cooperation through sanctions even without trusting their members #qualifies (0.75) — Russell Hardin, Trust and Trustworthiness, 808
• Cooperation is often rational gambling on typical trustworthiness, not chosen trust. #qualifies (0.75)
• Large collectivities cannot be trusted because free riding overrides shared interests #complicates (0.75)