Apologies as Signals: With Evidence from a Trust Game

Abstract

Apology is a social institution used to restore frayed relationships. It is relevant in daily interactions but also in medical malpractice, political reputation, corporate culture, etc. The theory presented shows that in a general class of moral hazard games with imperfect information about agents with two-dimensional type, the act of apology exhibits 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 theory; specifically, the words I am sorry appear to select equilibrium behavior consistent with each of the theory's main predictions.