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Trust and Reciprocity with Transparency and Repeated Interactions

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  • Kiridaran Kanagaretnam
  • Stuart Mestelman
  • S.M.Khalid Nainar
  • Mohamed Shehata

Abstract

This paper uses data from a controlled laboratory environment to study the impact of transparency (i.e., complete information versus incomplete information) and repeated interactions on the level of trust and trustworthiness in an investment game setting. The key findings of the study are that transparency (complete information) significantly increases trusting behavior in one-shot interactions. This result persists in repeated interactions. Further, transparency appears important for trustworthiness in one-shot interactions. In addition, repeated interaction increases trust and reciprocity with or without transparency. These results suggest transparency is important in building trust in business environments such as alliances and joint-ventures which are loosely connected organizational forms that bring together otherwise independent firms. It also provides support for the Sarbanes-Oxley Act of 2002 (SOX) and similar legislation elsewhere which attempt to regain investors’ trust in corporate management and financial markets by stipulating enhanced disclosures.

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File URL: http://socserv.mcmaster.ca/econ/rsrch/papers/archive/2009-03.pdf
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Bibliographic Info

Paper provided by McMaster University in its series Department of Economics Working Papers with number 2009-03.

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Length: 30 pages
Date of creation: May 2009
Date of revision:
Handle: RePEc:mcm:deptwp:2009-03

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Keywords: Transparency; Trust; Reciprocity; Repeated interaction; Business Alliances; SOX;

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References

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  1. Berg Joyce & Dickhaut John & McCabe Kevin, 1995. "Trust, Reciprocity, and Social History," Games and Economic Behavior, Elsevier, vol. 10(1), pages 122-142, July.
  2. Fudenberg, Drew & Levine, David K, 1992. "Maintaining a Reputation When Strategies Are Imperfectly Observed," Review of Economic Studies, Wiley Blackwell, vol. 59(3), pages 561-79, July.
  3. Brandts, Jordi & Figueras, Neus, 2003. "An exploration of reputation formation in experimental games," Journal of Economic Behavior & Organization, Elsevier, vol. 50(1), pages 89-115, January.
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  7. James C. Cox & Cary A. Deck, . "Assigning Intentions when Actions are Unobservable: the Impact of Trembling in the Trust Game," Experimental Economics Center Working Paper Series 2006-01, Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University.
  8. James C. Cox & Cary A. Deck, 2006. "When are Women More Generous than Men?," Experimental Economics Center Working Paper Series 2006-07, Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University.
  9. Anderhub, Vital & Güth, Werner & Engelmann, Dirk, 1999. "An experimental study of the repeated trust game with incomplete information," SFB 373 Discussion Papers 1999,97, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  10. Rohm, Andrew J. & Milne, George R., 2004. "Just what the doctor ordered: The role of information sensitivity and trust in reducing medical information privacy concern," Journal of Business Research, Elsevier, vol. 57(9), pages 1000-1011, September.
  11. Nancy Buchan & Rachel Croson, 1999. "Gender and Culture: International Experimental Evidence from Trust Games," American Economic Review, American Economic Association, vol. 89(2), pages 386-391, May.
  12. James C. Cox & Klarita Sadiraj & Vjollca Vjollca, . "Implications of Trust, Fear, and Reciprocity for Modeling Economic Behavior," Experimental Economics Center Working Paper Series 2006-10, Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University.
  13. Bohnet, Iris & Huck, Steffen, 2003. "Repetition and Reputation: Implications for Trust and Trustworthiness in the Short and in the Long Run," Working Paper Series rwp03-048, Harvard University, John F. Kennedy School of Government.
  14. Kreps, David M. & Milgrom, Paul & Roberts, John & Wilson, Robert, 1982. "Rational cooperation in the finitely repeated prisoners' dilemma," Journal of Economic Theory, Elsevier, vol. 27(2), pages 245-252, August.
  15. Fudenberg, Drew & Maskin, Eric, 1986. "The Folk Theorem in Repeated Games with Discounting or with Incomplete Information," Econometrica, Econometric Society, vol. 54(3), pages 533-54, May.
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Cited by:
  1. Kanagaretnam, Kiridaran & Mestelman, Stuart & Khalid Nainar, S.M. & Shehata, Mohamed, 2012. "The impact of empowering investors on trust and trustworthiness," Journal of Economic Psychology, Elsevier, vol. 33(3), pages 566-577.

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