Psychotic illness is a disorder of social interaction unique to humans. However, up to now research has failed to pin down the exact determinants of the complex and interactive processes associated with the development of trust and reciprocity in psychosis. Utilizing a novel multi-round version of an interactive trust game experiment, we show that patients with psychosis and healthy relatives with a heightened risk for the illness exhibit lower baseline levels of trust compared with healthy controls. This effect partly overlapped with a reduced general intelligence. Furthermore, patients were unable to modify their trusting behaviour neither in response to information about the general trustworthiness of their interaction partner, nor in response to their partners' specific direct behavioural feedback. Relatives, in contrast, modified their trusting behaviour towards similar levels as healthy subjects in response to both. The results show that behavioural flexibility in response to socially relevant information is a critical determinant of success in the instantiation and maintenance of social relationships. A lack thereof may drive social dysfunction and the progression from subclinical symptoms to a full-blown psychosis. This offers a testable mechanistic hypothesis for progression from prodrome to psychotic illness, and may provide a therapeutic avenue to grapple the psychotic symptoms of social dysfunction. © The Author (2012).