Efficiency in the trust game: an experimental study of precommitment (original) (raw)
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Limitations to Signaling Trust with All or Nothing Investments
SSRN Electronic Journal, 2000
Many economic interactions are characterized by "all or nothing" action spaces that may limit a demonstrable index of trust and, therefore, the propensity to reciprocate. In two experimental trust games, the action space governing investments was manipulated to examine the effects on investments and reciprocity. In the continuous game the investor could invest any amount between 0and0 and 0and10, while in the binary game the investor could invest either 0or0 or 0or10. In both games, the trustee received the tripled investment and then could return any amount back to the investor. Investors invested significantly more in the binary game than in the continuous game. However, higher investments in the binary game did not lead to more reciprocity. To the contrary, conditional on investment of $10, on average trustees returned significantly less in the binary game than in the continuous game.
Trust and reciprocity in the investment game with indirect reward
Homo Oeconomicus, 2000
Experimental studies have shown that trust and reciprocity are effective in increasing efficiency when complete contracting is infeasible. One example is the study by Berg et al. (1995) of the investment game. In this game the person who receives the investment is the one who may reward the investor. This is a direct reward game. Similar to Dufwenberg et al. (2000) it is investigated to what extent trust and reward are still observable when reward is indirect; i.e., when the investor may only be rewarded by a third person who did not receive his investment. Furthermore we investigate the influence of social comparison (information about other players' investments). Our main finding is that mainly indirect reward reduces significantly mutual cooperation.
2011
This paper shows that if a very small, exogenously given probability of terminating the exchange is introduced in an elementary investment game, more reciprocators will choose the defection strategy. Everything happens as if they "hide behind probabilities" in order to break the trust relationship. Investors do not alter their behavior in a significant way, at least not for a very small external risk. Financial assets all come with a predetermined and contractual probability that by the time when the buyer has to receive the reward for his investment, "bad luck" might have brought the asset value down to zero. In the light of the experimental findings, such trades would not provide a favorable environment for building trust. JEL Classification Index : C90, D81, G00. ESSEC Business School Paris avenue bernard hirsch -BP 50105 CERGY 95021 cergy-pontoise cedex -france tél. +33 (0)1 34 43 30 00 -fax +33 (0)1 34 43 30 01 www.essec.fr ESSEC executive EDUCATION CNIT -BP 230 92053 PARIS LA DéFENSE -FRANCE TéL. +33 (0)1 46 92 49 00 -fax +33 (0)1 46 92 49 90
2011
We design an experiment to examine welfare and behavior in a multi-level trust game representing a pass through investment in an intermediated market. In a repeated game, an Investor invests via an Intermediary who lends to a Borrower. A pre-experiment one-shot version of the game serves as a baseline and to type each subject. We alter the transparency of exchanges between non-adjacent parties. We find transparency of the exchanges between the investor and intermediary does not significantly affect welfare. However, transparency regarding exchanges between the intermediary and borrower promotes trust on the part of the investor, increasing welfare. Further, this has asymmetric effects: borrowers and intermediaries achieve greater welfare benefits than investors. We discuss implications for what specific aspects of financial market transparency may facilitate more efficiency.
2011
This paper shows that if a very small, exogenously given probability of terminating the exchange is introduced in an elementary investment game, more reciprocators will choose the defection strategy. Everything happens as if they "hide behind probabilities" in order to break the trust relationship. Investors do not alter their behavior in a significant way, at least not for a very small external risk. Financial assets all come with a predetermined and contractual probability that by the time when the buyer has to receive the reward for his investment, "bad luck" might have brought the asset value down to zero. In the light of the experimental findings, such trades would not provide a favorable environment for building trust.
Crowding out in an indefinitely repeated Asymmetric Trust Game
2006
In this paper we introduce an alternative version of the trust game by and that allows for asymmetric information. We use this version to study the effect of checking on the trustee's behaviour, checking is a control option the trustor can decide to use and that takes place after both trustor and trustee made their initial decisions. 'Checking' differs in this respect from the often in the literature found 'monitoring' that allows the trustor to control the trustee's behaviour before the trustee makes his decision. The game theoretical analysis suggests that checking increases co-operation. The experimental results show that this is only true for the selfish part of the trustee population. Honest trustee react negatively to checking, which is more in line with crowding out theory.
Discriminating strategic reciprocity and acquired trust in the repeated trust-game
2011
In repeated trust-game offers made by investors can be attributed to strategic reciprocation-based behavior. However, when a trustee is loyal, personal trust can build up between players, in the same way that lack of positive reciprocation on the part of trustees can motivate investors' distrust. Acquired personal trust or distrust and strategic reciprocation of the opponent's offers have then a cumulative and convergent influence on behavior in the trust game and are not prima facie distinguishable. We propose an experimental protocol which discriminates between these two determinants of trust. We furthermore show that acquired trust is the mere outcome of anonymous repeated interactions taking place during the experiment in the sense that it does not co-vary with an initial and independent baseline disposition to trust among investors: acquired trust crowds out background trust. Moreover, offers are sensitive to the amount and variance of trustees' returns. High ret...
Does the trust game measure trust?
Economics Letters, 2012
We test whether altruism is a significant confound of observed choices in the standard trust game. We allow for rich and poor trustees and examine whether, consistent with dominant altruism, trustors give more to the poor, or whether, consistent with dominant trust motives, trustors give no more to the poor than to the rich. This test is based on within-treatment and within-subject comparisons. Our results support trust as the dominant motivation for "trust like" decisions.
Social Effects in a Multi-Agent Investment Game. An Experimental Analysis
Ceel Working Papers, 2009
We experimentally investigate social effects in a principal-agent setting with incomplete contracts. The strategic interaction scheme is based on the well-known Investment Game (Berg et al., 1995). In our setting four agents (i.e., trustees) and one principal (i.e., trustor) are interacting and the access to choices of peers in the group of trustees is experimentally manipulated. Overall, subjects are positively influenced by peer's choices they observe. However, the positive interaction between choices is not strong enough to raise the reciprocity of those observing at the same level of those whose choices are observed.
Distinguishing trust from risk: An anatomy of the investment game
Journal of Economic Behavior & Organization, 2010
The role of trust in promoting economic activity and societal development has received considerable academic attention by social scientists. A popular way to measure trust at the individual level is the so-called "investment game" (Berg, Dickhaut, and McCabe, 1995). It has been widely noted, however, that risk attitudes can also affect decisions in this game, and thus in principle confound inferences about trust. We provide novel evidence, shedding light on the role of risk attitudes for trusting decisions. To the best of our knowledge, our data are the first rigorous evidence that (i) aggregate investment distributions differ significantly between trust and risk environments, and (ii) risk attitudes predict individual investment decisions in risk games but not in the corresponding trust games. Our results are convergent evidence that trust decisions are not tightly connected to a person's risk attitudes, and they lend support to the "trust" interpretation of decisions in investment games.