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Distinguishing trust from risk: an anatomy of the investment game

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  • Daniel Houser
  • Daniel Schunk
  • Joachim Winter

Abstract

The role of trust in promoting economic activity and societal development has received considerable academic attention by social scientists. A popular way to measure trust at the individual level is the so-called “investment game” (Berg, Dickhaut, and McCabe, 1995). It has been widely noted, however, that risk attitudes can also affect decisions in this game, and thus in principle confound inferences about trust. We provide novel evidence shedding light on the role of risk attitudes for trusting decisions. To the best of our knowledge our data are the first rigorous evidence that (i) aggregate investment distributions differ significantly between trust and risk environments, and (ii) risk attitudes predict individual investment decisions in risk games but not in the corresponding trust games. Our results are convergent evidence that trust decisions are not tightly connected to a person’s risk attitudes, and they lend support to the “trust” interpretation of decisions in investment games.

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Paper provided by Institute for Empirical Research in Economics - University of Zurich in its series IEW - Working Papers with number 450.

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Date of creation: Oct 2009
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Handle: RePEc:zur:iewwpx:450

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