Social risk and ambiguity in the trust game
AbstractDespite intensive research there is no clear evidence for a link between lottery risk preferences and risk involved in trusting others. We argue that this is partially due to a misalignment of the underlying sources of risk. Trusting is giving up control to a human source of risk while lottery risk has a mechanistic source. We propose a risky trust game that experimentally elicits social risk preferences that pertain to the same underlying human source. Our results show that transfers in the classic trust game are indeed best explained by social risk preferences and not by lottery risk preferences with an underlying mechanistic source. In addition, we argue that the type of uncertainty also plays a role. In the absence of objectively known probabilities of trustworthiness, trust also has an ambiguous component. We therefore decompose uncertainty in the trust game into social risk and an ambiguous component. Our results provide evidence that, when accounting for social risk, subjects who score high on ambiguity tolerance explain some of the remainder of trusting behavior.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 42302.
Date of creation: 29 Oct 2012
Date of revision:
Trust; trust game; decision making under uncertainty; risk; ambiguity; source of uncertainty;
Find related papers by JEL classification:
- C9 - Mathematical and Quantitative Methods - - Design of Experiments
- C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-11-11 (All new papers)
- NEP-CBE-2012-11-11 (Cognitive & Behavioural Economics)
- NEP-EVO-2012-11-11 (Evolutionary Economics)
- NEP-EXP-2012-11-11 (Experimental Economics)
- NEP-GTH-2012-11-11 (Game Theory)
- NEP-SOC-2012-11-11 (Social Norms & Social Capital)
- NEP-UPT-2012-11-11 (Utility Models & Prospect Theory)
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