The questions of whom to trust and whether to cooperate with another person are fundamental questions of social life. Experimental studies of these questions are legion and often use the one-shot Prisoner’s Dilemma as the paradigm choice situation. In the social network literature, homophily and reciprocity are fundamental forces that shape tie formation, as ties often occur disproportionately between individuals who are similar to each other on significant dimensions of social differentiation and also occur with greater than chance regularity when the tie for one person to another matches an incoming tie from the second to the first. Studies that demonstrate the importance of homophily and reciprocity are also legion.

Our research question explores the integration of the basic tie formation forces with the questions of trust and cooperation: that is, to what extent and under what circumstances are homophily and reciprocity conducive to trust and cooperation with others. The research is motivated in part by a desire to better understand two mechanisms, attraction and repulsion, that could produce homophily. In the first mechanism, individuals form social ties with others based on “attraction” to those who are similar to them along important social dimensions. In the second mechanism, the driving force in tie formation is “repulsion” from those who differ on these important social dimensions. In the first case, the overrepresentation of ties between persons of similar background is a direct consequence of an “inbreeding” bias while in the second case, it is an indirect consequence of a “rejection” bias directed at dissimilar others. Specifically, we hypothesize that the visibility of the distinguishing marker of group identity impacts an individual’s decision to form ties of trust and cooperation with others. Our experiments seek to evaluate this claim. At the same time our experiments enable us to evaluate the relative strength of homophily versus reciprocity in sustaining trust and cooperation when the two forces are at odds and the question is whether to reciprocate trust with an individual from the other identity group.

Participants in our experiment were given a series of exchange opportunities. The design of our experiment allows us to treat each subject-alter dyad in terms of a Prisoner’s Dilemma. However, the decision to cooperate or defect in the game is driven not only by the subject’s expectations about how likely the alter is to reciprocate, but also by the subject’s expectations about how likely other participants in the experiment are to share their resources with the subject. That is, the decision to cooperate or defect is shaped by expectations of both direct and generalized reciprocity, and the latter are a function of whether the other players are members of the subject’s in-group.