Is trust an ambiguous rather than a risky decision?
According to an early approach, the decision to trust in the one-shot anonymous trust game is intuitively tantamount to a risky decision: the willingness to bet on the reciprocation of my investment. In a seminal study, Eckel and Wilson (2004) explored the correlation between risk attitudes (as elicited through a Holt and Laury mechanism) and the behavior of investors in the trust game. They found no correlation: trust decision cannot be viewed as a risky decision. However, since the probabilities of possible returns are unknown, we argue that trust behavior may correlate more specifically with ambiguity aversion rather than with risk aversion. We therefore modified Eckel and Wilson's experimental procedure in order to investigate the question as to whether trust is an ambiguous decision. We extended Holt and Laury switching-point elicitation mechanism between risky lotteries to ambiguous lotteries as Chrakravarty and Roy (2009) did. We then ran an experimental session including a standard one shot anonymous trust game (OSG). We found significant negative correlations between aversion to ambiguity and behavior in OSG. This result is a plea in favor of a decision-theoretical analogy between choices in ambiguous lotteries and trust-games.
Volume (Year): 32 (2012)
Issue (Month): 3 ()
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- Sujoy Chakravarty & Jaideep Roy, 2009. "Recursive expected utility and the separation of attitudes towards risk and ambiguity: an experimental study," Theory and Decision, Springer, vol. 66(3), pages 199-228, March.
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113, University of Oxford, Department of Economics.
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- Cohen, Michele & Jaffray, Jean-Yves & Said, Tanios, 1987. "Experimental comparison of individual behavior under risk and under uncertainty for gains and for losses," Organizational Behavior and Human Decision Processes, Elsevier, vol. 39(1), pages 1-22, February.
- Eckel, Catherine C. & Wilson, Rick K., 2004. "Is trust a risky decision?," Journal of Economic Behavior & Organization, Elsevier, vol. 55(4), pages 447-465, December.
- Daniel Houser & Daniel Schunk & Joachim Winter, 2009.
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IEW - Working Papers
450, Institute for Empirical Research in Economics - University of Zurich.
- Houser, Daniel & Schunk, Daniel & Winter, Joachim, 2010. "Distinguishing trust from risk: An anatomy of the investment game," Journal of Economic Behavior & Organization, Elsevier, vol. 74(1-2), pages 72-81, May.
- Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
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