Trust and trustworthiness reputations in an investment game

Trust is an essential component of good social outcomes and effective economic performance. Reputation on the trustee's past behavior in the same role has proven to be greatly effective at raising the level of trust. In this study, we show that providing information on the trustee's past behavior as the trustor is equally effective as a reputation system. In fact, people still find it worthwhile to invest in a reputation as a trusting person, even though the immediate payoff for trusting is poor. This confirms the role of indirect reciprocity as a strategic notion based on reputation, whereby pro-social actions by one person towards a second person are sanctioned by a third party.