Trustworthy behavior requires some information cost, but imperfect information can suffice.

Evidence

Theoretically, any institution that restores incentives for Honest trading by restoring the effectiveness of decentralized enforcement must inform a player when his partner has cheated in the past. If the temptation to Cheat is small and the value of continued trading is high, then this information need not be perfect, as in our model. So it may be possible to induce honest behavior using a less costly information system - one that costs only q < Q to inform a trader adequately well - and correspondingly to increase the traders’ average payoffs from 1 - Q to 1 - 9.’ However, using imperfect information to economize on information costs calls merely for a refinement of the Law Merchant system - not for something fundamentally different. It is not possible to provide correct incentives without incurring some information cost of this kind — PAUL R. MILGRO, PAUL R. MILGRO - THE ROLE OF…, 131

Categorization

• QUESTION: Worth chasing: when is ‘good enough’ reputation information actually sufficient in real trade networks, and where does it break down?
• DEFINE: Clarifies the necessary-and-sufficient conditions for decentralized enforcement: it must at minimum signal partner cheating, but need not be perfect.
• XREF: connects to: Costly information, not infrequent trade, is the core obstacle to honest exchange. — PAUL R. MILGRO, PAUL R. MILGRO - THE ROLE OF…, 13; Information about partners’ past behavior is essential for punishing cheaters. — PAUL R. MILGRO, PAUL R. MILGRO - THE ROLE OF…, 120; A trustworthy reputation can be exploited because it is imperfectly known (+12 more)

Related

• Costly information, not infrequent trade, is the core obstacle to honest exchange. (similarity 0.88)
• Information about partners’ past behavior is essential for punishing cheaters. (similarity 0.83)
• Costly information is what breaks informal trade enforcement. (similarity 0.83)
• Reputation systems need cheap information flow, not frequent repeated trade, to enforce honesty. (similarity 0.83)
• Full-history information institutions are too costly for efficient trade (similarity 0.82)
• Institutions emerge where information is costly, not where enforcement is absent. (similarity 0.82)
• Extralegal contracting needs reputational information plus cheap formalities to signal formation. (similarity 0.80)
• Trustworthiness cannot be communicated as objective market information. (similarity 0.79)
• Bilateral reputation systems fail because information and sanctioning are costly public goods (similarity 0.79)
• Long-distance trade needs institutions to fill knowledge gaps about others’ honesty (similarity 0.78)
• Long-distance trade undermines honest behavior among strangers without institutions. (similarity 0.78)

Broader Connections

• A trustworthy reputation can be exploited because it is imperfectly known #expands (0.85)
• Trust arises not from powerlessness but from lack of full information about others. #corroborates (0.85) — Anthony Giddens, The Consequences of Modernity, 84
• Trust is at issue precisely when behavior is confidently predictable #contradicts (0.82)
• Trust is willed action taken despite an information deficit. #corroborates (0.80)
• Trust requires assurance that is at least somewhat well based #qualifies (0.80)
• Self-enforcing constraints can induce honest behavior from dishonest actors. #expands (0.80)
• Trusting values depend crucially on the information each party holds #expands (0.78)
• Predictable regularity of behavior does not amount to trust #contradicts (0.78)
• Distrust requires little evidence while trust demands rich understanding of incentives #expands (0.75)
• Trust substitutes knowledge of system structure for unavailable information about others. #complicates (0.75)
• Credible threats can require revealing information that defeats the threat #complicates (0.72) — Thomas C. Schelling, The Strategy of Conflict, 801