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Using Experimental Economics to Measure Social Capital and Predict Financial Decisions

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  • Karlan, Dean S.

Abstract

Questions remain as to whether results from experimental economics games are generalizable to real decisions in non-laboratory settings. Furthermore, important questions persist about whether social capital can help solve seemingly missing credit markets. I conduct two experiments, a Trust game and a Public Goods game, and a survey to measure social capital. I then examine whether behavior in the games predicts repayment of loans to a Peruvian group lending microfinance program. Since the structure of these loans relies heavily on social capital to enforce repayment, this is a relevant and important test of the games, as well as of other measures of social capital. I find that individuals identified as "trustworthy" by the Trust game are in fact less likely to default on their loans. I do not find similar support for the Trust game as a measure of trust.

Suggested Citation

  • Karlan, Dean S., 2005. "Using Experimental Economics to Measure Social Capital and Predict Financial Decisions," Center Discussion Papers 28429, Yale University, Economic Growth Center.
  • Handle: RePEc:ags:yaleeg:28429
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    File URL: http://ageconsearch.umn.edu/record/28429/files/dp050909.pdf
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    References listed on IDEAS

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    1. Besley, Timothy & Coate, Stephen & Loury, Glenn, 1993. "The Economics of Rotating Savings and Credit Associations," American Economic Review, American Economic Association, vol. 83(4), pages 792-810, September.
    2. Stephen Knack & Philip Keefer, 1997. "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 1251-1288.
    3. Kennedy, Bruce P. & Kawachi, Ichiro & Prothrow-Stith, Deborah & Lochner, Kimberly & Gupta, Vanita, 1998. "Social capital, income inequality, and firearm violent crime," Social Science & Medicine, Elsevier, vol. 47(1), pages 7-17, July.
    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. Edward L. Glaeser & David Laibson & Bruce Sacerdote, 2002. "An Economic Approach to Social Capital," Economic Journal, Royal Economic Society, vol. 112(483), pages 437-458, November.
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