The Economics Analysis Of Trust

Firstly, this article reviews the research findings of Chinese and overseas scholarswith respect to the trust problem, including the understanding of sociology andeconomies of foreign scholars from trust definition, trust function and trust structurewhich influence the establishment of trust,and also the article discusses the trust studyof our country.Secondly,the article describes the relationship between information and trust,to acertain extent, trust is an information problem,therefore,we focus on the impact ofasymmetry,dissemination of information and signal on trust which includes the signalpropagation, the mechanism of signal design and the cause of the signal failure. Since theformation of trust includes two most important mechanisms which are the punishmentmechanism and reputation mechanism,then the article describes the specific operation ofthe two mechanisms,as cooperation cannot be achieved through one game, theintroduction of punishment works out this problem by changing Nash equilibrium in themodel,by using comparative static analysis,we obtain more realistic conclusion. Next, thearticle describes bilateral punishment mechanism,multilateral punishment mechanismand trilateral punishment mechanism,which highlights the role of the law, because of thescope,the contract cannot be confirmed, the system is not complete and theimplementation of cost, punishment mechanism has its inherent limitations.Another mechanism for the formation of trust is the reputation mechanism,compared to punishment mechanism,the implementation of the reputation mechanismlowers the cost,in many cases,the law is powerless, and only reputation mechanism canbe worked out, in the chapter, we discuss the formation of reputation by introducing therepeated game under complete information and incomplete information. It is unlikely toproduce cooperation under limited repeated games: Kreps’s reputation model, whichopened a prisoner’s dilemma paradox,then we introduce the trigger strategy and tit for tatstrategy,the trigger strategy is a strategy of relatively cold,I trust you first,if you abuse mytrust on you,I will never trust you,trigger strategy is certainly more ruthless. However,the result is that cooperation will be maintained,so it is a Nash equilibrium strategy,in thetit for tat strategy,if you are honest,I will be honest,if you betray I will betray, we can see that,when the discount factor is large enough,tit for tat strategy is the Nash equilibrium,ifdiscount factor is relatively small, the participants would rather betray. Under incompleteinformation repeated game,we construct a two stage game,which each side has privateinformation,as long as the game repeats enough times, even a little uncertainty can leadto cooperative behavior, Reputation is the result of repeated games,so companies shouldtry to establish their own reputation to give their long-term benefits. Reputation cannotbe formed overnight, but it can be destroyed in twinkling, higher reputation oforganizations have little opportunistic behavior next by introducing a reputationmechanism into the Prisoner’s Dilemma model,we can see that it changes the Nashequilibrium. As business is an information carrier,composed by the individuals,so thearticle analyzes the personal reputation and collective reputation,through a simple model,the article establishes a collective interaction between two members,there are differencesin reputation between organizations, so the general reputable organizations seek rentsfrom more reputable organizations, then the pyramid structure of social trust is formed.At this stage of the economic transition in China,the government should keep its promiseto extend the chain of the organizations and maintain the trust of the communityatmosphere, so that the pyramid structure of social trust can be built higher. In order tocombine with the practice,In the end,this article puts forward some suggestions to solve the problem of trustcrisis,such as the government should improve the legal system,enhance their credibility,encourage free competition, take into accounts of the interests of all parties, theorganization should continually reinforce their reputation assets investments,strengthenproperty rights system, besides,the government should develop the role of credit bureauan social organizations. Because there are many factors that affect the trust, the analysisfrom the economic view only is not enough, so the reconstruction of the trust will be acomplex and a lengthy process to go.