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Distinguishing trust from risk: An anatomy of the investment game

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  • Houser, Daniel
  • Schunk, Daniel
  • Winter, Joachim

Abstract

The role of trust in promoting economic activity and societal development has received considerable academic attention by social scientists. A popular way to measure trust at the individual level is the so-called \"investment game\" (Berg et al., 1995). It has been widely noted, however, that risk attitudes can also affect decisions in this game, and thus in principle confound inferences about trust. We provide novel evidence shedding light on the role of risk attitudes for trusting decisions. To the best of our knowledge our data are the first rigorous evidence that (i) aggregate investment distributions differ significantly between trust and risk environments, and (ii) risk attitudes predict individual investment decisions in risk games but not in the corresponding trust games. Our results are convergent evidence that trust decisions are not tightly connected to a person’s risk attitudes, and they lend support to the \"trust\" interpretation of decisions in investment games.

Suggested Citation

  • Houser, Daniel & Schunk, Daniel & Winter, Joachim, 2010. "Distinguishing trust from risk: An anatomy of the investment game," Munich Reprints in Economics 19378, University of Munich, Department of Economics.
    • Handle: RePEc:lmu:muenar:19378
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