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Beliefs and actions in the trust game: Creating instrumental variables to estimate the causal effect

  • Costa-Gomes, Miguel A.
  • Huck, Steffen
  • Weizsäcker, Georg

In many economic contexts, an elusive variable of interest is the agent's belief about relevant events, e.g. about other agents' behavior. A growing number of surveys and experiments ask participants to state beliefs explicitly but little is known about the causal relation between beliefs and other behavioral variables. This paper discusses the possibility of creating exogenous instrumental variables for belief statements, by informing the agent about exogenous manipulations of the relevant events. We conduct trust game experiments where the amount sent back by the second player (trustee) is exogenously varied. The procedure allows detecting causal links from beliefs to actions under plausible assumptions. The IV-estimated effect is significant, confirming the causal role of beliefs. It is only slightly and insignificantly smaller than in estimations without instrumentation, consistent with a mild effect of social norms or other omitted variables.

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Paper provided by Social Science Research Center Berlin (WZB) in its series Discussion Papers, Research Unit: Economics of Change with number SP II 2012-302.

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Date of creation: 2012
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Handle: RePEc:zbw:wzbeoc:spii2012302
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  1. Miguel A. Costa-Gomes & Vincent P. Crawford, 2004. "Cognition and Behavior in Two-Person Guessing Games: An Experimental Study," Levine's Bibliography 122247000000000113, UCLA Department of Economics.
  2. Bellemare, Charles & Sebald, Alexander & Strobel, Martin, 2010. "Measuring the Willingness to Pay to Avoid Guilt: Estimation Using Equilibrium and Stated Belief Models," IZA Discussion Papers 4803, Institute for the Study of Labor (IZA).
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  9. Charles Bellemare & Sabine Kröger & Arthur van Soest, 2008. "Measuring Inequity Aversion in a Heterogeneous Population Using Experimental Decisions and Subjective Probabilities," Econometrica, Econometric Society, vol. 76(4), pages 815-839, 07.
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