Limitations to Signaling Trust with All or Nothing Investments

Eric Schniter, Roman Sheremeta and Timothy Shields ()
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Timothy Shields: Argyros School of Business and Economics, Chapman University

Working Papers from Chapman University, Economic Science Institute

Abstract: Many economic interactions are characterized by “all or nothing” action spaces that may limit a demonstrable index of trust and, therefore, the propensity to reciprocate. In two experimental trust games, the action space governing investments was manipulated to examine the effects on investments and reciprocity. In the continuous game the investor could invest any amount between $0 and $10, while in the binary game the investor could invest either $0 or $10. In both games, the trustee received the tripled investment and then could return any amount back to the investor. Investors invested significantly more in the binary game than in the continuous game. However, higher investments in the binary game did not lead to more reciprocity. To the contrary, conditional on investment of $10, on average trustees returned significantly less in the binary game than in the continuous game.

Keywords: trust game; signaling; demonstrable index of trust; reciprocity; experiments (search for similar items in EconPapers)
JEL-codes: C72 C91 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2013
New Economics Papers: this item is included in nep-evo, nep-exp, nep-gth and nep-soc
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Persistent link: https://EconPapers.repec.org/RePEc:chu:wpaper:13-24

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