While most of the previous literature interprets trust as an action, we adopt a view that trust is represented by a belief that the other party will return a fair share. The agent’s action is then a commitment device that signals this belief. In this paper we propose and test a conjecture that economic agents use trust strategically. That is, the agents have incentives to inflate the perceived level of trust (the signal) in order to induce a more favorable outcome for themselves. In the experiment we study the behavior of subjects in a modified investment game which is played sequentially and simultaneously. While the sequential treatment allows for strategic use of trust, in the simultaneous treatment the first mover’s action is not observed and hence does not signal her belief. In line with our prediction we find that first movers send significantly more in the sequential treatment than in simultaneous. Moreover, second movers reward trusting action, but only if it is maximal. We also find that signaling with trust enhances welfare.
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Paper provided by University of Canterbury, Department of Economics in its series Working Papers in Economics with number
08/11.
Find related papers by JEL classification: C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
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Daniel Houser & Daniel Schunk & Joachim Winter, 2006.
"Trust Games Measure Trust,"
MEA discussion paper series
06112, Mannheim Research Institute for the Economics of Aging (MEA), University of Mannheim.
[Downloadable!]
Other versions:
Daniel Houser & Daniel Schunk & Joachim Winter, 2006.
"Trust Games Measure Trust,"
MEA discussion paper series
06112, Mannheim Research Institute for the Economics of Aging (MEA), University of Mannheim.
[Downloadable!]
Wendelin Schnedler & Radovan Vadovic, 2007.
"Legitimacy of Control,"
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[Downloadable!]
Other versions:
Wendelin Schnedler & Radovan Vadovic, 2007.
"Legitimacy of Control,"
Working Papers
0450, University of Heidelberg, Department of Economics, revised Aug 2007.
[Downloadable!]
Gary Charness & Martin Dufwenberg, 2006.
"Promises and Partnership,"
Econometrica,
Econometric Society, vol. 74(6), pages 1579-1601, November.
[Downloadable!] (restricted)
Other versions:
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