Is trust an ambiguous rather than a risky decision
AbstractAccording to an early approach, the decision to trust in the one-shot anonymous trust game is intuitively tantamount to a risky decision: the willingness to bet on the reciprocation of my investment. In a seminal study, Eckel and Wilson (2004) explored the correlation between risk attitudes (as elicited through a Holt and Laury mechanism) and the behavior of investors in the trust game. They found no correlation: trust decision cannot be viewed as a risky decision. However, since the probabilities of possible returns are unknown, we argue that trust behavior may correlate more specifically with ambiguity aversion rather than with risk aversion. We therefore modified Eckel and Wilson's experimental procedure in order to investigate the question as to whether trust is an ambiguous decision. We extended Holt and Laury switching-point elicitation mechanism between risky lotteries to ambiguous lotteries as Chrakravarty and Roy (2009) did. We then ran an experimental session including a standard one shot anonymous trust game (OSG). We found significant negative correlations between aversion to ambiguity and behavior in OSG. This result is a plea in favor of a decision-theoretical analogy between choices in ambiguous lotteries and trust-games.
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Bibliographic InfoPaper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number ijn_00734563.
Date of creation: 10 Aug 2012
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Publication status: Published, Economics Bulletin, 2012, 32, 3, 2255-2266
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trust; risk aversion; ambiguity;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-10-06 (All new papers)
- NEP-CBE-2012-10-06 (Cognitive & Behavioural Economics)
- NEP-EVO-2012-10-06 (Evolutionary Economics)
- NEP-EXP-2012-10-06 (Experimental Economics)
- NEP-GTH-2012-10-06 (Game Theory)
- NEP-SOC-2012-10-06 (Social Norms & Social Capital)
- NEP-UPT-2012-10-06 (Utility Models & Prospect Theory)
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