Assigning Intentions when Actions are Unobservable: the Impact of Trembling in the Trust Game
This paper reports laboratory experiments investigating behavior when players may make inferences about the intentions behind others' prior actions based on higher- or lower-accuracy information about those actions. We investigate a trust game with first mover trembling, a game in which nature determines whether the first mover's decision is implemented or reversed. The results indicate that second movers give first movers the benefit of the doubt. However, first movers do not anticipate this response. Ultimately, it appears that subjects are thinking on at least three levels when making decisions: they are concerned with their own material well being, the trustworthiness of their counterpart, and how their own actions will be perceived.
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