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Social Distance and Trust: Experimental Evidence from a Slum in Cairo

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  • Binzel, Christine

    () (Heidelberg University)

  • Fehr, Dietmar

    () (WZB - Social Science Research Center Berlin)

Abstract

While strong social ties help individuals cope with missing institutions, trade is essentially limited to those who are part of the social network. We examine what makes the decision to trust a stranger different from the decision to trust a member of a given social network (a friend), by comparing the determinants of these two decisions for the same individual. We implement a binary trust game with hidden action in a lab-in-the-field experiment with residents of an informal housing area in Cairo. Our results show that trust is higher among friends than among strangers and that higher trust among friends is related to the principal's belief of trustworthiness. However, on average a principal underestimates her friend's trustworthiness leading to inefficient outcomes. Our findings suggest that even within a social network, trade may often be limited to exchanges with few information asymmetries.

Suggested Citation

  • Binzel, Christine & Fehr, Dietmar, 2013. "Social Distance and Trust: Experimental Evidence from a Slum in Cairo," IZA Discussion Papers 7183, Institute for the Study of Labor (IZA).
    • Handle: RePEc:iza:izadps:dp7183
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    1. Tsusaka, Takuji W. & Kajisa, Kei & Pede, Valerien O. & Aoyagi, Keitaro, 2013. "Neighbourhood effects and social behaviour: the case of irrigated and rainfed farmeres in Bohol, the Philippines," MPRA Paper 50130, University Library of Munich, Germany.
    2. Schudy, Simeon & Utikal, Verena, 2017. "‘You must not know about me’—On the willingness to share personal data," Journal of Economic Behavior & Organization, Elsevier, vol. 141(C), pages 1-13.
    3. Cadsby, C. Bram & Du, Ninghua & Song, Fei & Yao, Lan, 2015. "Promise keeping, relational closeness, and identifiability: An experimental investigation in China," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 57(C), pages 120-133.
    4. Batista, Catia & Silverman, Dan & Yang, Dean, 2015. "Directed giving: Evidence from an inter-household transfer experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 118(C), pages 2-21.
    5. Binzel, Christine & Fehr, Dietmar, 2013. "Giving and sorting among friends: Evidence from a lab-in-the-field experiment," Economics Letters, Elsevier, vol. 121(2), pages 214-217.
    6. Tsusaka, Takuji W. & Kajisa, Kei & Pede, Valerien O. & Aoyagi, Keitaro, 2015. "Neighborhood effects and social behavior: The case of irrigated and rainfed farmers in Bohol, the Philippines," Journal of Economic Behavior & Organization, Elsevier, vol. 118(C), pages 227-246.
    7. Shoji, Masahiro, 2016. "Incentive of risk sharing and trust formation: Experimental and survey evidence from Bangladesh," MPRA Paper 71950, University Library of Munich, Germany.
    8. Heinrich, Timo & Brosig-Koch, Jeannette, 2015. "Promises and Social Distance in Buyer-Determined Procurement Auctions," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112892, Verein für Socialpolitik / German Economic Association.
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    More about this item

    Keywords

    solidarity; economic development; hidden action; trust; social distance;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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