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Using Experimental Economics to Measure Social Capital and Predict Financial Decisions

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  • Dean S. Karlan

Abstract

Questions remain as to whether results from experimental economics are generalizable to real decisions in nonlaboratory settings. Furthermore, questions persist about whether social capital helps mitigate information asymmetries in credit markets. I examine whether behavior in two laboratory games, Trust and a Public Goods, predicts loan repayments to a Peruvian group-lending microfinance program. Since this program relies on social capital to enforce repayment, this tests the external validity of the games. Individuals identified as "trustworthy" by the Trust Game are indeed less likely to default on their loans. No similar support is found for the game's identification of "trusting" individuals.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/000282805775014407
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File URL: http://www.aeaweb.org/aer/data/dec05_data_20030833.zip
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 95 (2005)
Issue (Month): 5 (December)
Pages: 1688-1699

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Handle: RePEc:aea:aecrev:v:95:y:2005:i:5:p:1688-1699

Note: DOI: 10.1257/000282805775014407
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References

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  1. Timothy Besley & Stephen Coate & Glenn Loury, 1992. "The Economics of Rotating Savings and Credit Associations," Boston University - Institute for Economic Development 24, Boston University, Institute for Economic Development.
  2. Chaim Fershtman & Uri Gneezy, 2001. "Discrimination In A Segmented Society: An Experimental Approach," The Quarterly Journal of Economics, MIT Press, vol. 116(1), pages 351-377, February.
  3. DeanS. Karlan, 2007. "Social connections and group banking," Economic Journal, Royal Economic Society, vol. 117(517), pages F52-F84, 02.
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  5. Scheinkman, Jose A. & Soutter, Christine L. & Glaeser, Edward Ludwig & Laibson, David I., 2000. "Measuring Trust," Scholarly Articles 4481497, Harvard University Department of Economics.
  6. Alvin E. Roth & V. Prasnikar & M. Okuno-Fujiwara & S. Zamir, 1998. "Bargaining and market behavior in Jerusalem, Liubljana, Pittsburgh and Tokyo: an experimental study," Levine's Working Paper Archive 344, David K. Levine.
  7. Ernst Fehr & Lorenz Gotte, 2002. "Do workers work more if wages are high? Evidence from a randomized field experiment," Natural Field Experiments 00240, The Field Experiments Website.
  8. Dean Karlan & Jonathan Zinman, 2004. "Observing unobservables: Identifying information asymmetries with a consumer credit field experiment," Natural Field Experiments 00283, The Field Experiments Website.
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  10. David Laibson & Andrea Repetto & Jeremy Tobacman, 2000. "A Debt Puzzle," NBER Working Papers 7879, National Bureau of Economic Research, Inc.
  11. Nava Ashraf & Dean S. Karlan & Wesley Yin, 2005. "Tying Odysseus to the Mast: Evidence from a Commitment Savings Product in the Philippines," Working Papers 917, Economic Growth Center, Yale University.
  12. Joseph Henrich & Robert Boyd & Samuel Bowles & Colin Camerer & Herbert Gintis & Richard McElreath & Ernst Fehr, 2001. "In search of homo economicus: Experiments in 15 small-scale societies," Artefactual Field Experiments 00068, The Field Experiments Website.
  13. Joseph Henrich & Robert Boyd & Samuel Bowles & Colin Camerer & Ernst Fehr & Herbert Gintis & Richard McElreath, 2001. "Cooperation, Reciprocity and Punishment in Fifteen Small-scale Societies," Working Papers 01-01-007, Santa Fe Institute.
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  16. Carol C. Bertaut & Michael Haliassos, 2001. "Debt Revolvers for Self Control," University of Cyprus Working Papers in Economics 0208, University of Cyprus Department of Economics.
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  18. Knack, Stephen & Keefer, Philip, 1997. "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1251-88, November.
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  20. Kennedy, Bruce P. & Kawachi, Ichiro & Prothrow-Stith, Deborah & Lochner, Kimberly & Gupta, Vanita, 1998. "Social capital, income inequality, and firearm violent crime," Social Science & Medicine, Elsevier, vol. 47(1), pages 7-17, July.
  21. Abigail Barr, 2003. "Trust and expected trustworthiness: experimental evidence from zimbabwean villages," Economic Journal, Royal Economic Society, vol. 113(489), pages 614-630, 07.
  22. Berg Joyce & Dickhaut John & McCabe Kevin, 1995. "Trust, Reciprocity, and Social History," Games and Economic Behavior, Elsevier, vol. 10(1), pages 122-142, July.
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