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Building Trust One Gift at a Time

This paper reports an experiment evaluating the effect of gift giving on building trust in a relationship. We have nested our explorations in the standard version of the investment game. Our gift treatment includes a dictator stage in which the trustee decides whether to give a gift to the trustor before both of them proceed to play the investment game. We observe that in such case the majority of trustees offer their endowment to trustors. Consequently, receiving a gift significantly increases the amounts sent by trustors when controlling for the differences in payoffs created by it. Trustees are, however, not better off by giving a gift as the increase in the amount sent by trustors is not large enough to offset the trustees’ loss associated with the cost of giving a gift. Our results indicate that a relationship which is initiated by gift giving leads to higher trust and efficiency but at the same time is probably not stable.

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File URL: http://www.econ.canterbury.ac.nz/RePEc/cbt/econwp/0911.pdf
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Paper provided by University of Canterbury, Department of Economics and Finance in its series Working Papers in Economics with number 09/11.

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Length: 24 pages
Date of creation: 17 Jun 2009
Handle: RePEc:cbt:econwp:09/11
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