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Using Experimental Economics to Measure Social Capital And Predict Financial Decisions

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  • Dean S. Karlan

    () (Economic Growth Center, Yale University and Princeton University)

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

  • Dean S. Karlan, 2005. "Using Experimental Economics to Measure Social Capital And Predict Financial Decisions," Working Papers 909, Economic Growth Center, Yale University.
  • Handle: RePEc:egc:wpaper:909
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    References listed on IDEAS

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    More about this item

    Keywords

    trust game; experimental economics; microfinance;

    JEL classification:

    • B4 - Schools of Economic Thought and Methodology - - Economic Methodology
    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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