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Trust and Reciprocity in the Investment Game with Indirect Reward

  • Werner Güth

    (Max Planck Institute for Research into Economic Systems, Strategic Interaction Unit, Jena, Germany)

  • Manfred Königstein

    (Humboldt University at Berlin, Institute for Economic Theory III, Berlin, Germany)

  • Nadège Marchand

    (CIRANO - Center for Interuniversity Research and Analysis on Organizations, Montréal, Québec, Canada)

  • Klaus Nehring

    (Dept. of Economics, University of California, Davis, One Shields Avenue, CA, USA)

Experimental studies have shown that trust and reciprocity are effective in increasing efficiency when complete contracting is infeasible. One example is the study by Berg et al. (1995) of the investment game. In this game the person who receives the investment is the one who may reward the investor. This is a direct reward game. Similar to Dufwenberg et al. (2001) we investigate to what extent trust and reward are still observable when reward is indirect; i.e., when the investor may only be rewarded by a third person who did receive his investment. Furthermore, we investigate the influence of social comparison (information about other players' investments) Our main finding is that indirect reward significantly reduces mutual cooperation.

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Article provided by Institute of SocioEconomics in its journal Homo Oeconomicus.

Volume (Year): 18 (2001)
Issue (Month): ()
Pages: 241-262

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Handle: RePEc:hom:homoec:v:18:y:2001:p:241-262
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  1. Willinger, Marc & Keser, Claudia & Lohmann, Christopher & Usunier, Jean-Claude, 2003. "A comparison of trust and reciprocity between France and Germany: Experimental investigation based on the investment game," Journal of Economic Psychology, Elsevier, vol. 24(4), pages 447-466, August.
  2. Robert H. Frank & Thomas Gilovich & Dennis T. Regan, 1993. "Does Studying Economics Inhibit Cooperation?," Journal of Economic Perspectives, American Economic Association, vol. 7(2), pages 159-171, Spring.
  3. Matthew Rabin., 1992. "Incorporating Fairness into Game Theory and Economics," Economics Working Papers 92-199, University of California at Berkeley.
  4. Berg Joyce & Dickhaut John & McCabe Kevin, 1995. "Trust, Reciprocity, and Social History," Games and Economic Behavior, Elsevier, vol. 10(1), pages 122-142, July.
  5. Axel Ockenfels & Gary E. Bolton, 2000. "ERC: A Theory of Equity, Reciprocity, and Competition," American Economic Review, American Economic Association, vol. 90(1), pages 166-193, March.
  6. Werner Güth & Wolfgang Klose & Manfred Königstein & Joachim Schwalbach, 1998. "An experimental study of a dynamic principal-agent relationship," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 19(4-5), pages 327-341.
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