Scenario: Your car broke down while you were driving to the office one morning. You took it to the nearest service center and were told by the mechanic that you need to pay $500 for the repair. You are uncertain about whether to trust him. If you do not trust him, you have to take it to another service center, which is far away and inconvenient. If you trust him, he can either cooperate or defect (do an honest job or not). If he does an honest job, both of you will gain from the trade. If he does not do an honest job, he will gain $500 while you will lose your money. Clearly, he will gain more by defecting rather than by cooperating with you.
-Refer to the scenario above.Which of the following is likely to happen if the service center has a reputation for trustworthiness?

Question

Quizplus · Accepted Answer

If the service center has a reputation for trustworthiness, then it is more likely that the mechanic will do an honest job if you choose to trust him. This increases the chances of both parties gaining from the trade, and therefore, you are more likely to trust the mechanic and he will cooperate.

Scenario: Your Car Broke Down While You Were Driving to the Office