Disclosure of Belief-Dependent Preferences in a Trust Game

We study behavior in a trust game, assuming that the truster is self-interested and the trustee has belief-dependent preferences given by a combination of guilt aversion and intention-based reciprocity. We propose a parametrized representation of such preferences, derive solutions for the corresponding psychological game with complete information about preferences, and offer a qualitative analysis of the incomplete information case. We test our theoretical predictions in a laboratory experiment where the trustee’s belief-dependent preferences are elicited through a structured questionnaire. In the control treatment, the answers are not disclosed to the co-player. In the main treatment, these answers are made common knowledge within the matched pair. According to our main auxiliary assumption, the treatment with disclosure approximately implements a psychological game with complete information. We find that guilt aversion is the prevalent psychological motivation, and that the trustee’s propensity to share is indeed increasing with guilt aversion. Furthermore, behavior and elicited beliefs move in the direction predicted by the theory. Specifically, in the treatment with disclosure, we find a polarization of behavior and beliefs, with more trust and sharing in matched pairs with an elicited high-guilt trustee. High-guilt trustees are less cooperative in the control treatment, where a higher frequency of intermediate beliefs is also found. JEL classification: C72, C91, D03. Keywords: Experiments, psychological games, trust game, guilt, reciprocity, incomplete and complete information.