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Words Speak Louder Than Money

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Should one use words or money to foster trust of the other party if no means of enforcing trustworthiness are available? This paper reports an experiment studying the effectiveness of two types of mechanisms for promoting trust: a costly gift and a costless message as well as their mutual interaction. We nest our findings in the standard version of the investment game. Our data provide evidence that while both stand-alone mechanisms enhance trust, and a gift performs significantly worse than a message. Moreover, when a gift is combined with sending a message, it can be counterproductive.

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File URL: http://www.econ.canterbury.ac.nz/RePEc/cbt/econwp/1113.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 11/13.

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Length: 30 pages
Date of creation: 10 Apr 2011
Handle: RePEc:cbt:econwp:11/13
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