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Limitations to Signaling Trust with All or Nothing Investments

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Author Info

  • Eric Schniter

    (Economic Science Institute, Chapman University)

  • Roman M. Sheremeta

    (Department of Economics, Weatherhead School of Management, Case Western Reserve University and the Economic Science Institute)

  • Timothy W. Shields

    ()
    (Argyros School of Business and Economics, Chapman University)

Abstract

Many economic interactions are characterized by “all or nothing” action spaces that may limit a demonstrable index of trust and, therefore, the propensity to reciprocate. In two experimental trust games, the action space governing investments was manipulated to examine the effects on investments and reciprocity. In the continuous game the investor could invest any amount between $0 and $10, while in the binary game the investor could invest either $0 or $10. In both games, the trustee received the tripled investment and then could return any amount back to the investor. Investors invested significantly more in the binary game than in the continuous game. However, higher investments in the binary game did not lead to more reciprocity. To the contrary, conditional on investment of $10, on average trustees returned significantly less in the binary game than in the continuous game.

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Bibliographic Info

Paper provided by Chapman University, Economic Science Institute in its series Working Papers with number 13-24.

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Length: 20 pages
Date of creation: 2013
Date of revision:
Handle: RePEc:chu:wpaper:13-24

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Keywords: trust game; signaling; demonstrable index of trust; reciprocity; experiments;

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