Trust and Partner Selection in Social Networks: An Experimentally Grounded Model

This article investigates the importance of the endogenous selection of partners for trust and cooperation in market exchange situations, where there is information asymmetry between investors and trustees. We created an experimental-data driven agent-based model where the endogenous link between interaction outcome and social structure formation was examined starting from heterogeneous agent behaviour. By testing various social structure configurations, we showed that dynamic networks lead to more cooperation when agents can create more links and reduce exploitation opportunities by free riders. Furthermore, we found that the endogenous network formation was more important for cooperation than the type of network. Our results cast serious doubt about the static view of network structures on cooperation and can provide new insights into market efficiency.