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Words Speak Louder Than Money

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Abstract

Should one use words or money to foster trust of the other party if no means of enforcing trustworthiness are available? This paper reports an experiment studying the effectiveness of two types of mechanisms for promoting trust: a costly gift and a costless message as well as their mutual interaction. We nest our findings in the standard version of the investment game. Our data provide evidence that while both stand-alone mechanisms enhance trust, and a gift performs significantly worse than a message. Moreover, when a gift is combined with sending a message, it can be counterproductive.

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File URL: http://www.econ.canterbury.ac.nz/RePEc/cbt/econwp/1113.pdf
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Bibliographic Info

Paper provided by University of Canterbury, Department of Economics and Finance in its series Working Papers in Economics with number 11/13.

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Length: 30 pages
Date of creation: 10 Apr 2011
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Handle: RePEc:cbt:econwp:11/13

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Related research

Keywords: Communication; content analysis; experimental economics; gift giving; investment game; message; trust; trustworthiness;

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References

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  1. Ernst Fehr, 2003. "Psychological Foundations of Incentives," Microeconomics 0305010, EconWPA.
  2. Charness, Gary & Cobo-Reyes, Ramón & Jiménez, Natalia, 2008. "An investment game with third-party intervention," Journal of Economic Behavior & Organization, Elsevier, vol. 68(1), pages 18-28, October.
  3. Elinor Ostrom, 2000. "Collective Action and the Evolution of Social Norms," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 137-158, Summer.
  4. Gary Charness & Martin Dufwenberg, 2006. "Promises and Partnership," Econometrica, Econometric Society, vol. 74(6), pages 1579-1601, November.
  5. Ellingsen, Tore & Johannesson, Magnus, 2006. "Pride and Prejudice: The Human Side of Incentive Theory," CEPR Discussion Papers 5768, C.E.P.R. Discussion Papers.
  6. Gneezy, Uri & Rustichini, Aldo, 2000. "A Fine is a Price," The Journal of Legal Studies, University of Chicago Press, vol. 29(1), pages 1-17, January.
  7. Uri Gneezy & Aldo Rustichini, 2000. "Pay Enough Or Don'T Pay At All," The Quarterly Journal of Economics, MIT Press, vol. 115(3), pages 791-810, August.
  8. Maroš Servátka & Steven Tucker & Radovan Vadovic, 2008. "Strategic Use of Trust," Working Papers in Economics 08/11, University of Canterbury, Department of Economics and Finance.
  9. Bruno S. Frey & Reto Jegen, 2000. "Motivation Crowding Theory: A Survey of Empirical Evidence," CESifo Working Paper Series 245, CESifo Group Munich.
  10. Dirk Sliwka, 2007. "Trust as a Signal of a Social Norm and the Hidden Costs of Incentive Schemes," American Economic Review, American Economic Association, vol. 97(3), pages 999-1012, June.
  11. Maroš Servátka & Steven Tucker & Radovan Vadovic, 2009. "Building Trust One Gift at a Time," Working Papers in Economics 09/11, University of Canterbury, Department of Economics and Finance.
  12. Steven D. Levitt & John A. List, 2007. "What Do Laboratory Experiments Measuring Social Preferences Reveal About the Real World?," Journal of Economic Perspectives, American Economic Association, vol. 21(2), pages 153-174, Spring.
  13. Gary Charness & Matthew Rabin, 2003. "Understanding Social Preferences with Simple Tests," General Economics and Teaching 0303002, EconWPA.
  14. Cox, James C., 2004. "How to identify trust and reciprocity," Games and Economic Behavior, Elsevier, vol. 46(2), pages 260-281, February.
  15. Pierpaolo Battigalli & Martin Dufwenberg, 2007. "Guilt in Games," American Economic Review, American Economic Association, vol. 97(2), pages 170-176, May.
  16. Huck, Steffen & Ruchala, Gabriele K. & Tyran, Jean-Robert, 2007. "Pricing and Trust," CEPR Discussion Papers 6135, C.E.P.R. Discussion Papers.
  17. 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.
  18. James Andreoni, 2005. "Trust, Reciprocity, and Contract Enforcement: Experiments on Satisfaction Guaranteed," Levine's Bibliography 666156000000000679, UCLA Department of Economics.
  19. repec:cdl:econwp:890 is not listed on IDEAS
  20. Engle-Warnick, Jim & Slonim, Robert L., 2004. "The evolution of strategies in a repeated trust game," Journal of Economic Behavior & Organization, Elsevier, vol. 55(4), pages 553-573, December.
  21. 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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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Talk, trust & inequality
    by chris dillow in Stumbling and Mumbling on 2011-04-27 11:30:45
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
Cited by:
  1. James Cox & Maroš Servátka & Radovan Vadovič, 2010. "Saliency of outside options in the lost wallet game," Experimental Economics, Springer, vol. 13(1), pages 66-74, March.
  2. Maroš Servátka & Steven Tucker & Radovan Vadovič, 2011. "Building Trust—One Gift at a Time," Games, MDPI, Open Access Journal, vol. 2(4), pages 412-433, September.

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