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Trust, Reciprocity and Rules

Thomas Rietz, Eric Schniter, Roman Sheremeta and Timothy Shields

MPRA Paper from University Library of Munich, Germany

Abstract: Many economic interactions rely on trust, which is sometimes violated. The fallout from business fraud and other malfeasance shows serious economic consequences of trust violations. Simple rules mandating minimum standards are attractive because they prevent the most egregious trust violations. However, such rules may undermine more trusting and reciprocal (trustworthy) behavior that otherwise would have occurred and, thus, lead to worse outcomes. We use an experimental trust game to test the efficacy of exogenously imposed minimum standard rules. Rules fail to increase trust and reciprocity, leading to lower economic welfare. Although sufficiently restrictive rules restore welfare, trust and reciprocity never return. The pattern of results is consistent with participants who are not only concerned with payoffs, but also use the game to learn about trust and trustworthiness of others.

Keywords: Trust; Reciprocity; Minimum Standards; Experiment (search for similar items in EconPapers)
JEL-codes: C72 C90 D63 D64 L51 (search for similar items in EconPapers)
Date: 2017-07-19
New Economics Papers: this item is included in nep-cbe, nep-evo, nep-exp, nep-gth, nep-hpe and nep-soc
References: Add references at CitEc
Citations: View citations in EconPapers (3)

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https://mpra.ub.uni-muenchen.de/80275/1/MPRA_paper_80275.pdf original version (application/pdf)

Related works:
Journal Article: TRUST, RECIPROCITY, AND RULES (2018) Downloads
Working Paper: Trust, Reciprocity and Rules (2011) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:80275

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