On the Transmission of Guilt Aversion and the Evolution of Trust

We model the endogenous evolution of trust and trustworthiness in a population where agents have heterogeneous levels of guilt aversion. We consider an overlapping generation model in which agents interact by playing the Trust Game and exert effort to transmit their level of guilt aversion to their offspring. In this setting, we investigate (i) the effects of the knowledge of the matched partner’s guilt aversion in the Trust game, (ii) the consequences of having parents who care either about the materialistic payoff of their offspring (materialistic parents), or their overall psychological utility (empathic parents), and (iii) the interaction between these two aspects. We find that with incomplete information on the matched partner the level of trust/trustworthiness in the society is (weakly) lower than in the case of complete information. This effect is mitigated both by some type of empathic parents and by the presence of homophily.