Abstract
This paper describes how social capital emerges, relates to economic performance and evolves in the long run. Using the concept of psychological equilibrium, two types of individuals are generated in the population regarding their willingness to cooperate. We propose an evolutionary (learning) process over those types driven by the total payoffs of the psychological game, and provide a complete description of its dynamics. Macro-perceptions, defined as the individual perception of how cooperative the society is as a whole, are key to explain convergence to the full social capital state in the long run.
Highlights
The aim of this paper is to explain how social capital is created, evolves and how it is related to economic performance and perceptions
The proposed model studies social capital framed as the likelihood of cooperation in a Prisoner’s Dilemma game by applying the concept of psychological equilibrium
2) Additionaly, we suggest a way to extend such concept of psychological equilibrium to a dynamic game that through a natural selection process operates over the types previously generated by it. 3) The mechanics of this whole approach leads to the desired outcome of explaining as endogenous variables macro-perceptions and the distribution of types in the population among others
Summary
The aim of this paper is to explain how social capital is created, evolves and how it is related to economic performance and perceptions. The proposed model studies social capital framed as the likelihood of cooperation in a Prisoner’s Dilemma game by applying the concept of psychological equilibrium. By means of the replicator dynamics we endogenize the distribution of types in the population The result of it is that when pro-social type agents are able to coordinate themselves on mutual cooperation through favorable macro-perceptions, they are better off than the basic agents and will be the only type of people in the population. Along with the main findings, this paper provides some original methodological contributions: 1) By means of the concept of psychological equilibrium we split the population into two types of individuals endogenously—and not as a preliminary assumption of the model.
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