Apologies as Signals: With Evidence from a Trust Game

Apology is a social institution that restores frayed relationship not only in daily life but also in the domains of corporate governance, medical malpractice litigation, political reputation, organizational culture, etc. The theory shows that in a general class of moral hazard games with imperfect information about agents with two-dimensional type, apologies exhibit regular properties—e.g. apologies are more frequent in long relationships, early in relationships, and between better matched partners. A variant of the trust game demonstrates that communication matters in a manner consistent with economic theory; specifically, the words ―I am sorry‖ appear to select equilibrium behavior consistent with the theory‘s main predictions.