TY  - JOUR
AU  - Acemoglu, Daron
AU  - Wolitzky, Alexander
TI  - Cycles of Distrust: An Economic Model
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 18257
PY  - 2012
Y2  - July 2012
DO  - 10.3386/w18257
UR  - http://www.nber.org/papers/w18257
L1  - http://www.nber.org/papers/w18257.pdf
N1  - Author contact info:
Daron Acemoglu
Department of Economics, E52-446
Massachusetts Institute of Technology
77 Massachusetts Avenue
Cambridge, MA 02139
Tel: 617/253-1927
Fax: 617/253-1330
E-Mail: daron@mit.edu

Alexander Wolitzky
Department of Economics
Massachusetts Institute of Technology
50 Memorial Drive
Cambridge, MA 02142-1347
E-Mail: wolitzky@mit.edu
AB  - We propose a model of cycles of distrust and conflict. Overlapping generations of agents from two groups sequentially play coordination games under incomplete information about whether the other side consists of "extremists" who will never take the good/trusting action. Good actions may be mistakenly perceived as bad/distrusting actions. We also assume that there is limited information about the history of past actions, so that an agent is unable to ascertain exactly when and how a sequence of bad actions originated. Assuming that both sides are not extremists, spirals of distrust and conflict get started as a result of a misperception, and continue because the other side interprets the bad action as evidence that it is facing extremists. However, such spirals contain the seeds of their own dissolution: after a while, Bayesian agents correctly conclude that the probability of a spiral having started by mistake is sufficiently high, and bad actions are no longer interpreted as evidence of extremism. At this point, one party experiments with a good action, and the cycle restarts. We show how this mechanism can be useful in interpreting cycles of ethnic conflict and international war, and how it also emerges in models of political participation, dynamic inter-group trade, and communication - leading to cycles of political polarization, breakdown of trade, and breakdown of communication.
ER  -