Strategic Use of Trust

Maroš Servátka, Steven Tucker and Radovan Vadovic ()

Working Papers in Economics from University of Canterbury, Department of Economics and Finance

Abstract: While most of the previous literature interprets trust as an action, we adopt a view that trust is represented by a belief that the other party will return a fair share. The agent’s action is then a commitment device that signals this belief. In this paper we propose and test a conjecture that economic agents use trust strategically. That is, the agents have incentives to inflate the perceived level of trust (the signal) in order to induce a more favorable outcome for themselves. In the experiment we study the behavior of subjects in a modified investment game which is played sequentially and simultaneously. While the sequential treatment allows for strategic use of trust, in the simultaneous treatment the first mover’s action is not observed and hence does not signal her belief. In line with our prediction we find that first movers send significantly more in the sequential treatment than in simultaneous. Moreover, second movers reward trusting action, but only if it is maximal. We also find that signaling with trust enhances welfare.

Keywords: Experimental Economics; Trust; Beliefs (search for similar items in EconPapers)
JEL-codes: C70 C91 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2008-05-15
New Economics Papers: this item is included in nep-cbe, nep-exp, nep-gth and nep-soc
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:cbt:econwp:08/11

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