Do Investors Trust or Simply Gamble?

Roman Sheremeta and Timothy Shields

Working Papers from Chapman University, Economic Science Institute

Abstract: We design an experiment to study individual behavior in a strategic information setting where the sender has economic incentives to deceive and the receiver has economic incentives to avoid deception. To ascertain whether subjects in the role of receiver glean information content from the sender’s message, we elicit choices from risky gambles constructed to be mathematically equivalent to the information setting if the sender’s message lacks information content. In the experiment subjects act simultaneously as a sender and receiver in a one-shot interaction. The findings of our experiment indicate that (i) subjects tend to act deceptively as senders but trusting as receivers, and (ii) as receivers, subjects glean information content from the senders’ messages. Thus, we find investors (receivers) trust and investment cannot be rationalized solely by subjects’ attitudes towards risk.

Keywords: experiment; level-k thinking; strategic communication; risk preference; beliefs (search for similar items in EconPapers)
Pages: 9 pages
Date: 2010
New Economics Papers: this item is included in nep-cta and nep-exp
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Persistent link: https://EconPapers.repec.org/RePEc:chu:wpaper:10-21

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