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Social risk and ambiguity in the trust game

Author

Listed:
  • Fairley, Kim
  • Sanfey, Alan
  • Vyrastekova, Jana
  • Weitzel, Utz

Abstract

Despite intensive research there is no clear evidence for a link between lottery risk preferences and risk involved in trusting others. We argue that this is partially due to a misalignment of the underlying sources of risk. Trusting is giving up control to a human source of risk while lottery risk has a mechanistic source. We propose a risky trust game that experimentally elicits social risk preferences that pertain to the same underlying human source. Our results show that transfers in the classic trust game are indeed best explained by social risk preferences and not by lottery risk preferences with an underlying mechanistic source. In addition, we argue that the type of uncertainty also plays a role. In the absence of objectively known probabilities of trustworthiness, trust also has an ambiguous component. We therefore decompose uncertainty in the trust game into social risk and an ambiguous component. Our results provide evidence that, when accounting for social risk, subjects who score high on ambiguity tolerance explain some of the remainder of trusting behavior.

Suggested Citation

  • Fairley, Kim & Sanfey, Alan & Vyrastekova, Jana & Weitzel, Utz, 2012. "Social risk and ambiguity in the trust game," MPRA Paper 42302, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:42302
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    File URL: https://mpra.ub.uni-muenchen.de/59900/8/MPRA_paper_59900.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Trust; trust game; decision making under uncertainty; risk; ambiguity; source of uncertainty;

    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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