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Trust, risk and betrayal

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  • Bohnet, Iris
  • Zeckhauser, Richard

Abstract

Using experiments, we examine whether the decision to trust a stranger in a one-shot interaction is equivalent to taking a risky bet, or if a trust decision entails an additional risk premium to balance the costs of trust betrayal. We compare a binary-choice Trust game with a structurally identical, binary-choice Risky Dictator game with good or bad outcomes. We elicit individuals’ minimum acceptable probabilities (MAPs) of getting the good outcome such that they would prefer the chance to the sure payoff. First movers state higher MAPs in the Trust game than in situations where nature determines the outcome.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 55 (2004)
Issue (Month): 4 (December)
Pages: 467-484

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Handle: RePEc:eee:jeborg:v:55:y:2004:i:4:p:467-484

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References

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  1. Charness, Gary B & Rabin, Matthew, 2001. "Understanding Social Preferences With Simple Tests," University of California at Santa Barbara, Economics Working Paper Series qt0dc3k4m5, Department of Economics, UC Santa Barbara.
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  4. Blount, Sally, 1995. "When Social Outcomes Aren't Fair: The Effect of Causal Attributions on Preferences," Organizational Behavior and Human Decision Processes, Elsevier, vol. 63(2), pages 131-144, August.
  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. Fehr, Ernst & Schmidt, Klaus M., 1998. "A Theory of Fairness, Competition and Cooperation," CEPR Discussion Papers 1812, C.E.P.R. Discussion Papers.
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  8. Eckel, Catherine C & Grossman, Philip J, 1998. "Are Women Less Selfish Than Men? Evidence from Dictator Experiments," Economic Journal, Royal Economic Society, vol. 108(448), pages 726-35, May.
  9. Cox, James C., 2004. "How to identify trust and reciprocity," Games and Economic Behavior, Elsevier, vol. 46(2), pages 260-281, February.
  10. Buchan, Nancy R. & Croson, Rachel T.A. & Solnick, Sara, 2008. "Trust and gender: An examination of behavior and beliefs in the Investment Game," Journal of Economic Behavior & Organization, Elsevier, vol. 68(3-4), pages 466-476, December.
  11. Alesina, Alberto F & La Ferrara, Eliana, 2000. "Who Trusts Others?," CEPR Discussion Papers 2646, C.E.P.R. Discussion Papers.
  12. Nava Ashraf & Iris Bohnet & Nikita Piankov, 2004. "Is Trust a Bad Investment?," CREMA Working Paper Series 2004-07, Center for Research in Economics, Management and the Arts (CREMA).
  13. Pillutla, Madan M. & Murnighan, J. Keith, 1996. "Unfairness, Anger, and Spite: Emotional Rejections of Ultimatum Offers," Organizational Behavior and Human Decision Processes, Elsevier, vol. 68(3), pages 208-224, December.
  14. Gary E Bolton & Jordi Brandts & Axel Ockenfels, 2005. "Fair Procedures: Evidence from Games Involving Lotteries," Economic Journal, Royal Economic Society, vol. 115(506), pages 1054-1076, October.
  15. Nancy Buchan & Rachel Croson, 1999. "Gender and Culture: International Experimental Evidence from Trust Games," American Economic Review, American Economic Association, vol. 89(2), pages 386-391, May.
  16. Ananish Chaudhuri & Lata Gangadharn, 2003. "Gender Differences in Trust and Reciprocity," Department of Economics - Working Papers Series 875, The University of Melbourne.
  17. Axel Ockenfels & Gary E. Bolton, 2000. "ERC: A Theory of Equity, Reciprocity, and Competition," American Economic Review, American Economic Association, vol. 90(1), pages 166-193, March.
  18. Bohnet, Iris & Frey, Bruno S., 1999. "The sound of silence in prisoner's dilemma and dictator games," Journal of Economic Behavior & Organization, Elsevier, vol. 38(1), pages 43-57, January.
  19. Eckel, Catherine C. & Wilson, Rick K., 2004. "Is trust a risky decision?," Journal of Economic Behavior & Organization, Elsevier, vol. 55(4), pages 447-465, December.
  20. 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.
  21. Rabin, Matthew, 1993. "Incorporating Fairness into Game Theory and Economics," American Economic Review, American Economic Association, vol. 83(5), pages 1281-1302, December.
  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.
  23. James Andreoni & John Miller, 2002. "Giving According to GARP: An Experimental Test of the Consistency of Preferences for Altruism," Econometrica, Econometric Society, vol. 70(2), pages 737-753, March.
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