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A Laboratory Study of a Multi-Level Trust Game with Communication

Listed author(s):
  • Roman M. Sheremeta
  • Jingjing Zhang

This experimental study explores how communication influences efficiency, trust and trustworthiness in a small group when one member is left out of communication. To study this problem, we introduce a novel three-player trust game where player 1 can send any portion of his endowment to player 2. The amount sent gets tripled. Player 2 decides how much to send to player 3. The amount is again tripled, and player 3 then decides the allocation among the three players. The baseline treatment with no communication shows that on average players 1 and 2 send significant amounts and player 3 reciprocates even though all players are randomly regrouped every period. When we add communication between players 2 and 3, the amounts sent and returned between these two increase. The interesting finding is that there are external effects of communication: player 1 who is outside communication sends 60% more and receives 140% more than in the no communication treatment. As a result, social welfare and efficiency increase from 48% to 73%.

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Paper provided by McMaster University in its series Department of Economics Working Papers with number 2009-07.

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Length: 29 pages
Date of creation: Sep 2009
Handle: RePEc:mcm:deptwp:2009-07
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