Final answer:
The high cost of lying fosters trust, particularly in scenarios with imperfect information where reputation and formal guarantees play a key role in ensuring cooperation and reducing risk.
Step-by-step explanation:
The type of trust described in the question is known as the high cost of lying. In economic and game theory contexts, especially when dealing with imperfect information, trust can be fostered by the potential high cost of being untruthful. For instance, when firms are considering whether to cooperate or to compete, they must evaluate the risks and benefits of breaking trust.
Firm A, in the given example, is contemplating its options based on what it thinks Firm B will do. If the cost of deviating from an agreement (such as through penalties, loss of reputation, or future business) is high enough, then trust can be sustained. This is why mechanisms like reputation, guarantees, warrantees, and contracts are crucial in markets where imperfect information exists—they serve to reduce the risk and thus foster trust.
In a prisoner's dilemma scenario, trust between well-acquainted participants leads to increased likelihood of cooperation. This illustrates that when the cost of dishonesty is high, it incentivizes behaviors that uphold trust.