Adaptive Trust and Co-operation: An Agent-Based Simulation Approach

This paper extends earlier work in the use of 'Agent-based Computational Economics' (ACE) for modelling the development of cooperation between firms. Inter-firm relations have increasingly been analyzed by means of transaction cost economics (TCE). However, as has been widely acknowledged, TCE does not include any dynamics of learning, adaptation or innovation, and it does not include trust. It assumes that efficient outcomes arise, while that may be in doubt, due to complexity and path-dependency of interactions between multiple agents that make, continue and break relations in unpredictable ways. We use ACE methodology to model how cooperation , trust and loyalty emerge and shift adaptively as relations evolve in a context of multiple, interacting agents. Agents adapt their trust on the basis of perceived loyalty. They adapt the weight they attacht to trust relative to potential profit and they adapt their own loyalty, both as a function of realized profits. This allows us to explore when trust and loyalty increase and when they decrease, and what the effects are on (cumulative) profit.