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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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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. Martin W. Cripps & George J. Mailath & Larry Samuelson, 2006. "Disappearing Private Reputations in Long-Run Relationships," Levine's Bibliography 321307000000000152, UCLA Department of Economics.
  2. Anderhub, Vital & Engelmann, Dirk & Guth, Werner, 2002. "An experimental study of the repeated trust game with incomplete information," Journal of Economic Behavior & Organization, Elsevier, vol. 48(2), pages 197-216, June.
  3. 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.
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  6. 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.
  7. 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.
  8. Berg Joyce & Dickhaut John & McCabe Kevin, 1995. "Trust, Reciprocity, and Social History," Games and Economic Behavior, Elsevier, vol. 10(1), pages 122-142, July.
  9. Giorgio Coricelli & Luis González Morales & Amelie Mahlstedt, 2006. "The Investment Game With Asymmetric Information," Metroeconomica, Wiley Blackwell, vol. 57(1), pages 13-30, 02.
  10. Johnson, Devon & Grayson, Kent, 2005. "Cognitive and affective trust in service relationships," Journal of Business Research, Elsevier, vol. 58(4), pages 500-507, April.
  11. 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.
  12. 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.
  13. 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.
  14. 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.
  15. David Kreps & Paul Milgrom & John Roberts & Bob Wilson, 2010. "Rational Cooperation in the Finitely Repeated Prisoners' Dilemma," Levine's Working Paper Archive 239, David K. Levine.
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Cited by:
  1. Kiridaran Kanagaretnam & Stuart Mestelman & Khalid Nainar & Mohamed Shehata, 2009. "The Impact of Empowering Investors on Trust and Trustworthiness," Department of Economics Working Papers 2009-16, McMaster University.

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