Do Investors Trust or Simply Gamble?
AbstractWe design an experiment to study individual behavior in a strategic information setting where the sender has economic incentives to deceive and the receiver has economic incentives to avoid deception. To ascertain whether subjects in the role of receiver glean information content from the sender’s message, we elicit choices from risky gambles constructed to be mathematically equivalent to the information setting if the sender’s message lacks information content. In the experiment subjects act simultaneously as a sender and receiver in a one-shot interaction. The findings of our experiment indicate that (i) subjects tend to act deceptively as senders but trusting as receivers, and (ii) as receivers, subjects glean information content from the senders’ messages. Thus, we find investors (receivers) trust and investment cannot be rationalized solely by subjects’ attitudes towards risk.
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Bibliographic InfoPaper provided by Chapman University, Economic Science Institute in its series Working Papers with number 10-21.
Length: 9 pages
Date of creation: 2010
Date of revision:
experiment; level-k thinking; strategic communication; risk preference; beliefs;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-11-20 (All new papers)
- NEP-CTA-2010-11-20 (Contract Theory & Applications)
- NEP-EXP-2010-11-20 (Experimental Economics)
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