Understanding the trust game strategy in macroeconomics

At its core, the trust game is a simple yet powerful illustration of trust in action. This experiment consists of two players, where the first player (the ‘trustor’) receives a sum of money and decides how much to send to the second player (the ‘trustee’). The transferred amount is then multiplied, often tripled, by the facilitator. The trustee then must choose how much of this increased sum to send back to the trustor. Although the trustor could play it safe and send nothing, many participants choose to share because they expect the trustee to act responsibly. When that happens, both players can benefit more than if neither had cooperated.¹

This simple experiment reveals that people often act on trust rather than mere self-interest. In real economies, these same dynamics play out across markets and institutions, where individuals and organisations must risk resources based on the expectation of reciprocal behaviour. The trust game, therefore, offers a window into how economies thrive or falter on the foundations of mutual belief and cooperation.

The trust game serves as a simplified yet powerful model encapsulating different dynamics, such as vulnerability, expectation, incentives, and shared rewards, that serve as the basis of the broader economic system. By exploring these elements in the trust game, you can better understand how individual decision-making can influence macro-level outcomes.

1. Trustor and rustee

The trust game revolves around two roles: the trustor, who makes a vulnerable first move by sending resources without guarantee of return, and the trustee, who decides whether to honor that initial trust. This situation mirrors real economic relationships. For instance, lenders trusting borrowers, employers trusting employees, and governments trusting trading partners. Several studies have proven that individuals often go beyond self-interested calculations, choosing to both trust and reciprocate at levels higher than classical economic predictions.¹

2. Risk and uncertainty

When the trustor sends money, they expose themselves to two different risks: financial loss and the risk that the other party may not reciprocate. Behavioral research introduces the idea of betrayal aversion, where people tend to feel more discomfort about the possibility of being let down by someone else than about taking a financial risk.⁶ In a macroeconomic context, this helps explain why businesses may become more cautious when trust in their partners is low, which can result in more careful lending decisions, slower trade activity, and a more measured pace of economic growth.

3. The multiplier effect

The game’s multiplying step (e.g., tripling the transfer) captures how cooperation can generate greater collective gains. A higher multiplier increases both the potential payoff and incentives to cooperate. On a broader scale, it mirrors how productive investments, when matched with trust, can create value that significantly exceeds the initial commitment.

4. Reciprocity and incentives

Trust alone isn’t enough. Trustees must respond appropriately for the trust to be effective. Reciprocity, a fundamental behavioral driver, is what makes trust worthwhile. Many players chose to return trust even without incentives, demonstrating reciprocal tendencies grounded in fairness and reputation. In the broader economy, this mechanism keeps relationships intact, as borrowers honor debts, employees fulfill their duties, and markets continue to operate because participants expect their cooperation to be reciprocated.

5. Payoff structure and collective outcomes

The trust game’s payoff structure highlights the tension between individual self-interest and collective gain. While a fully rational trustee would return nothing, actual behavior shows generosity that boosts joint welfare.¹ Scaling this up, societies exhibiting these dynamics benefit from increased investment, smoother transactions, and stronger resilience, showing why mutual expectations are key to economic vitality.

1. Boosting investments and productivity

When trust is high, the cost of contracting, monitoring, and enforcing agreements tends to decrease. High levels of trust can encourage greater business investment, both in volume and quality, which in turn supports productivity gains and drives real GDP growth per capita.³

Foreign Direct Investment (FDI) is a good example to illustrate this. When multinational firms invest in countries with less developed legal systems, they often depend on informal trust (such as a country’s reputation or track record), rather than formal legal protections. When host governments uphold agreements and protect investor rights, they foster a more stable business environment that encourages further investment and supports productivity growth. Conversely, when agreements are not upheld, investor confidence can be affected, which may influence future capital flows and slow broader economic activity.⁴

2. Anchoring financial stability

The effectiveness of monetary policy and the stability of the financial system rely on public trust in institutions like central banks and governments. For instance, research shows that when people trust a central bank’s commitment to its inflation target and see it as credible and independent, monetary policy transmits more smoothly, and economic shocks are better absorbed.⁵

One classic example is government debt and market confidence. Bond markets are a common source of funding for governments to support their fiscal activities. In this setting, investors act as trustors, allocating capital based on their assessment of a government’s fiscal responsibility and policy continuity. When trust diminishes, borrowing costs tend to rise, capital inflows may slow, and financial markets can experience periods of heightened volatility. Maintaining investor confidence is crucial to preserving financial stability and smooth market functioning.⁶

3. Preventing crises

A breakdown in trust, such as during a financial crisis, can quickly spread panic, freeze credit, and disrupt economic activity. In a 2016 study spanning 34 countries, researchers found that during banking crises, firms in high-trust cultures were far more resilient. They received more trade credits and suffered smaller declines in profits and employment compared to those in low-trust environments.⁷ This suggests that social trust acts as a buffer, enabling alternative financing channels to function when formal systems falter. 

The trust game may be a simple experimental model, but its implications stretch far across the complex landscape of macroeconomics. Trust drives investment, strengthens financial stability, prevents crises, and underpins international cooperation. Whether through the confidence investors place in governments, the willingness of multinational firms to commit capital abroad, or the stability of financial institutions, trust serves as a vital enabler of economic growth and resilience. By fostering environments where trust can flourish, policymakers, businesses, and individuals can build stronger, more sustainable economies that are better equipped to navigate uncertainty and future challenges.

For more information about how the trust game strategy shapes macroeconomic outcomes, you will find clear explanations, real-world examples, and strategic insights into how trust, reciprocity, and institutional credibility influence investment, financial stability, and global economic cooperation.

References

¹ Fiedler S, Riedl A. Trust Games and Beyond. Front Psychol. 2019;10:887.

² Sangnier M. Does trust favor macroeconomic stability? J Comp Econ. 2013;41(3):653–668.

³ Wolf M. The link between trust and economic prosperity [Internet]. Deloitte Insights; 2021 May 20 [cited 2025 Jun 25]. Available from:https://www.deloitte.com/us/en/insights/topics/economy/connecting-trust-and-economic-growth.html

⁴ Anand K, Gai P, Marsili M. Financial crises and the evaporation of trust [Internet]. arXiv:0911.3099 [q-fin.GN]; 2009 Nov 16 [cited 2025 Jun 25]. Available from:https://arxiv.org/abs/0911.3099

⁵ Ji Y, De Grauwe P. Trust and monetary policy [Internet]. VoxEU; 2022 Apr 2 [cited 2025 Jun 25]. Available from:https://cepr.org/voxeu/columns/trust-and-monetary-policy

⁶ Liu Y. Disclosing public debt boosts investor confidence, cuts borrowing costs [Internet]. IMF Blog; 2025 Jun 12 [cited 2025 Jun 25]. Available from:
https://www.imf.org/en/Blogs/Articles/2025/06/12/disclosing-public-debt-boosts-investor-confidence-cuts-borrowing-costs

⁷ Levine R, Lin C, Xie W. Corporate resilience to banking crises: the roles of trust and trade credit [Internet]. NBER Working Paper No. 22153; 2016 Apr [cited 2025 Jun 25]. Available from:http://www.nber.org/papers/w22153