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Using Experimental Economics to Measure Social Capital and Predict Financial Decisions

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  • Dean S. Karlan

Abstract

Questions remain as to whether results from experimental economics are generalizable to real decisions in nonlaboratory settings. Furthermore, questions persist about whether social capital helps mitigate information asymmetries in credit markets. I examine whether behavior in two laboratory games, Trust and a Public Goods, predicts loan repayments to a Peruvian group-lending microfinance program. Since this program relies on social capital to enforce repayment, this tests the external validity of the games. Individuals identified as "trustworthy" by the Trust Game are indeed less likely to default on their loans. No similar support is found for the game's identification of "trusting" individuals.

Suggested Citation

  • Dean S. Karlan, 2005. "Using Experimental Economics to Measure Social Capital and Predict Financial Decisions," American Economic Review, American Economic Association, vol. 95(5), pages 1688-1699, December.
  • Handle: RePEc:aea:aecrev:v:95:y:2005:i:5:p:1688-1699
    Note: DOI: 10.1257/000282805775014407
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • B4 - Schools of Economic Thought and Methodology - - Economic Methodology
    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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