The Reputation Trap

Few want to do business with a partner who has bad reputation. Consequently, once reputation is established, it can be difficult get rid of. This leads on the one hand intuitive idea that good easy lose and hard gain. On other hand, lead strong form of history dependence in which single beneficial or adverse event cast shadow over very long period time. It gives rise reputational trap where an agent rationally chooses not invest because chances others will find out too low. Nevertheless, same make every effort maintain it. Here, simple model constructed conditions for there unique equilibrium constitutes are characterized.