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A Socio-cognitive View of Repeated Interfirm Exchanges: How the Co-evolution of Trust and Learning Impacts Subsequent Contracts

Abstract

I augment the study of repeated interfirm exchanges with social cognition to expand the understanding of trust development and learning, and how these combined forces shape subsequent contracts. Although scholars have extensively examined the independent effects of trust and learning on contracts in repeated exchanges, their co-evolution and combined impact have received much less attention. I argue this omission largely occurs because social cognition is not typically considered in these literatures, even though both trust development and learning are socio-cognitive processes influenced by each other, as well as heuristics (contract frames) and cognitive biases (intergroup attribution bias). When these processes are examined in a positive exchange, the contract frame (prevention or promotion) influences initial reputation-based trust or prior development of knowledge-based trust (competence or integrity), which biases what is learned. This biased learning further impacts knowledge-based trust development, and together these factors shape adjustments to subsequent contracts. In a negative exchange, the contract frame, prior reputation-based trust, and partner explanation (internal versus external) impacts what is learned from partner violations (competence or integrity). This biased learning influences knowledge-based trust development, and together they shape how subsequent contracts are adjusted. I also propose that biased learning influences when contracts act as complements or substitutes for different types of trust, addressing existing debates and critiques in these literatures. Finally, I discuss the dark side of integrity trust and trust repair under promotion contracts in repeated exchanges.

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