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Trust and Financial Trades: Lessons from an Investment Game Where Reciprocators Can Hide Behind Probabilities

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Author Info

  • Vranceanu, Radu

    ()
    (ESSEC Business School)

  • Sutan, Angela

    ()
    (ESC Dijon Bourgogne)

  • Dubart, Delphine

    ()
    (ESSEC Business School)

Abstract

In this paper we show that if a very small, exogenously given probability of terminating the exchange is introduced in an elementary investment game, reciprocators play more often the defection strategy. Everything happens as if they "hide behind probabilities" in order to break the trust relationship. Investors do no not seem able to internalize the reciprocators' change in behavior. This could explain why trades involving an exogenous risk of value destruction, such as financial transactions, provide an unfavorable environment for trust-building

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Bibliographic Info

Paper provided by ESSEC Research Center, ESSEC Business School in its series ESSEC Working Papers with number DR 10007.

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Length: 16 pages
Date of creation: May 2010
Date of revision:
Handle: RePEc:ebg:essewp:dr-10007

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Postal: ESSEC Research Center, BP 105, 95021 Cergy, France
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Web page: http://www.essec.edu/
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Keywords: Experimental Economics; Financial Transactions; Investment Game; Objective Risk; Trust;

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  1. Crifo, Patricia & Mottis, Nicolas, 2010. "SRI Analysis and Asset Management: Independent or Convergent? A Field Study on the French Market," ESSEC Working Papers DR 10006, ESSEC Research Center, ESSEC Business School.
  2. Vranceanu, Radu & Laot, Maxime & Dubart, Delphine, 2010. "Une échelle de mesure de la connaissance en raisonnement économique et résultats d'une enquête menée en décembre 2009," ESSEC Working Papers DR 10001, ESSEC Research Center, ESSEC Business School.
  3. Batista, Catia & Potin, Jacques, 2006. "Stages of Diversification and Capital Accumulation in an Heckscher-Ohlin World, 1975-1995," ESSEC Working Papers DR 06008, ESSEC Research Center, ESSEC Business School.
  4. Berg Joyce & Dickhaut John & McCabe Kevin, 1995. "Trust, Reciprocity, and Social History," Games and Economic Behavior, Elsevier, vol. 10(1), pages 122-142, July.
  5. Batista, Catia & Potin, Jacques, 2008. "International Specialization and the Return to Capital, 1976-2000," ESSEC Working Papers DR 08001, ESSEC Research Center, ESSEC Business School.
  6. Jason Dana & Roberto Weber & Jason Kuang, 2007. "Exploiting moral wiggle room: experiments demonstrating an illusory preference for fairness," Economic Theory, Springer, vol. 33(1), pages 67-80, October.
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Cited by:
  1. Besancenot, Damien & Vranceanu, Radu, 2009. "Banks’ risk race: a signaling explanation," ESSEC Working Papers DR 09007, ESSEC Research Center, ESSEC Business School.

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