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Using Experimental Economics to Measure Social Capital And Predict Financial Decisions

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  • Dean S. Karlan

    ()
    (Economic Growth Center, Yale University and Princeton University)

Abstract

Questions remain as to whether results from experimental economics games are generalizable to real decisions in non-laboratory settings. Furthermore, important questions persist about whether social capital can help solve seemingly missing credit markets. I conduct two experiments, a Trust game and a Public Goods game, and a survey to measure social capital. I then examine whether behavior in the games predicts repayment of loans to a Peruvian group lending microfinance program. Since the structure of these loans relies heavily on social capital to enforce repayment, this is a relevant and important test of the games, as well as of other measures of social capital. I find that individuals identified as "trustworthy" by the Trust game are in fact less likely to default on their loans. I do not find similar support for the Trust game as a measure of trust.

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Bibliographic Info

Paper provided by Economic Growth Center, Yale University in its series Working Papers with number 909.

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Length: 20 pages
Date of creation: Apr 2005
Date of revision:
Handle: RePEc:egc:wpaper:909

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Keywords: trust game; experimental economics; microfinance;

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References

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