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Do Investors Trust or Simply Gamble?

Author

Listed:
  • Roman Sheremeta

    (Argyros School of Business and Economics, Chapman University)

  • Timothy Shields

    (Argyros School of Business and Economics, Chapman University)

Abstract

We design an experiment to study individual behavior in a strategic information setting where the sender has economic incentives to deceive and the receiver has economic incentives to avoid deception. To ascertain whether subjects in the role of receiver glean information content from the sender’s message, we elicit choices from risky gambles constructed to be mathematically equivalent to the information setting if the sender’s message lacks information content. In the experiment subjects act simultaneously as a sender and receiver in a one-shot interaction. The findings of our experiment indicate that (i) subjects tend to act deceptively as senders but trusting as receivers, and (ii) as receivers, subjects glean information content from the senders’ messages. Thus, we find investors (receivers) trust and investment cannot be rationalized solely by subjects’ attitudes towards risk.

Suggested Citation

  • Roman Sheremeta & Timothy Shields, 2010. "Do Investors Trust or Simply Gamble?," Working Papers 10-21, Chapman University, Economic Science Institute.
    • Handle: RePEc:chu:wpaper:10-21
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    Keywords

    experiment; level-k thinking; strategic communication; risk preference; beliefs;
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