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Social Norms, Information and Trust among Strangers: Theory and Evidence

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Author Info

  • John Duffy

    ()
    (University of Pittsburgh)

  • Huan Xie

    ()
    (Concordia University)

  • Yong-Ju Lee

    ()
    (Samsung Research Institute of Finance)

Abstract

Can a social norm of trust and reciprocity emerge among strangers? We investigate this question by examining behavior in an experiment where subjects repeatedly play a two-player binary ―trust‖ game. Players are randomly and anonymously paired with one another in each period. The main questions addressed are whether a social norm of trust and reciprocity emerges under the most extreme information restriction (anonymous community-wide enforcement) or whether trust and reciprocity require additional, individual-specific information about a player’s past history of play and whether that information must be provided freely or at some cost. In the absence of such reputational information, we find that a social norm of trust and reciprocity is difficult to sustain. The provision of reputational information on past individual decisions significantly increases trust and reciprocity, with longer histories yielding the best outcomes. Importantly, we find that making reputational information available at a small cost may also lead to a significant improvement in trust and reciprocity, despite the fact that most subjects do not choose to purchase this information.

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Bibliographic Info

Paper provided by Concordia University, Department of Economics in its series Working Papers with number 08007.

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Length: 49 pages
Date of creation: Aug 2008
Date of revision: Jul 2001
Handle: RePEc:crd:wpaper:08007

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Keywords: Social Norms; Trust Game; Random Matching; Trust and Reciprocity; Information; Reputational Mechanisms; Experimental Economics.;

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References

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  1. Pedro Bó, 2007. "Social norms, cooperation and inequality," Economic Theory, Springer, vol. 30(1), pages 89-105, January.
  2. Fehr, Ernst & Schmidt, Klaus M., . "A theory of fairness, competition, and cooperation," Chapters in Economics, University of Munich, Department of Economics.
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  4. John Duffy & Jack Ochs, 2006. "Cooperative Behavior and the Frequency of Social Interaction," Working Papers 274, University of Pittsburgh, Department of Economics, revised Jul 2008.
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  7. Gary E. Bolton & Elena Katok & Axel Ockenfels, 2003. "How Effective are Electronic Reputation Mechanisms? An Experimental Investigation," Working Paper Series in Economics 3, University of Cologne, Department of Economics.
  8. Paul R. Milgrom & Douglass C. North & Barry R. Weingast, 1990. "The Role Of Institutions In The Revival Of Trade: The Law Merchant, Private Judges, And The Champagne Fairs," Economics and Politics, Wiley Blackwell, vol. 2(1), pages 1-23, 03.
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  10. Greif, Avner, 1993. "Contract Enforceability and Economic Institutions in Early Trade: the Maghribi Traders' Coalition," American Economic Review, American Economic Association, vol. 83(3), pages 525-48, June.
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  12. Bolton, Gary E. & Katok, Elena & Ockenfels, Axel, 2005. "Cooperation among strangers with limited information about reputation," Journal of Public Economics, Elsevier, vol. 89(8), pages 1457-1468, August.
  13. Gabriele Camera & Marco Casari, 2009. "Cooperation among Strangers under the Shadow of the Future," American Economic Review, American Economic Association, vol. 99(3), pages 979-1005, June.
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Cited by:
  1. Brown, M. & Serra Garcia, M., 2010. "Relational Contracting Under the Threat of Expropriation – Experimental Evidence," Discussion Paper 2010-85, Tilburg University, Center for Economic Research.
  2. Charness, Gary & Du, Ninghua & Yang, Chun-Lei, 2011. "Trust and trustworthiness reputations in an investment game," Games and Economic Behavior, Elsevier, vol. 72(2), pages 361-375, June.

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