Trust and Uncertainty in Strategic Interaction: Behavioural and Physiological Evidence from the Centipede Game

Dhiraj Jagadale and Kavita Vemuri

Papers from arXiv.org

Abstract: Mutual trust is a key determinant of decision-making in economic interactions, yet actual behavior often diverges from equilibrium predictions. This study investigates how emotional arousal, indexed by skin conductance responses,SCR, relates to trust behavior in a modified centipede game. To examine the impact of uncertainty, the game incorporated both fixed and random termination conditions. SCRs were recorded alongside self-reported measures of mutual and general trust and individual risk-taking propensity. Phasic SCRs were significantly higher under random termination, particularly following the opponent take actions, indicating increased emotional arousal under uncertainty. Mutual trust scores correlated positively with risk propensity but not with general trust. Behaviorally, higher mutual trust was associated with extended cooperative play, but only in the fixed-turn condition. These findings suggest that physiological arousal reflects emotional engagement in trust-related decisions and that uncertainty amplifies both arousal and strategic caution. Mutual trust appears context-dependent, shaped by emotional and physiological states that influence deviations from equilibrium behavior.

Date: 2025-11
New Economics Papers: this item is included in nep-exp and nep-soc
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