In transparency we trust an experimental study of reputation, transparency, and signaling

Natalia Borzino, Enrique Fatas () and Emmanuel Peterle
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Natalia Borzino: ETH Zürich
Emmanuel Peterle: CRESE - Centre de REcherches sur les Stratégies Economiques (UR 3190) - UFC - Université de Franche-Comté - UBFC - Université Bourgogne Franche-Comté [COMUE]

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Abstract: We study transparency and reputation in a stylized investment game in which two senders interact with a receiver in a linear network with partial information. We analyze how ex-ante information (compatible with receiver's reputation building) and ex-post information (making the receiver's decisions transparent) affect behavior in the trust game. In the Reputation treatment, senders know the average amount returned by the receiver to senders in the previous period, but not the actions of those senders. In the Transparency treatment, senders are aware of the amount received by the other sender, but not the action of this other sender. Relative to a Baseline treatment in which senders are only informed about their own actions and outcomes, ex-ante and ex-post information disclosure have very different effects. While reputation helps some receivers, aggregate trust does not significantly increase in the Reputation condition. Transparency generates a large and significant increase in trust (amounts sent are 27% above the ones chosen in Reputation), being the effect largely driven by a sustained and large reduction of senders choosing not to trust at all (56% less in Transparency than in Reputation in the second half of the experiment). Our design also introduces a non-binding recommendation for both senders and receivers. Across all treatments and roles, this recommendation significantly and positively shapes individual decisions.

Date: 2023-10
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Published in Journal of Behavioral and Experimental Economics, 2023, 106, pp.102061. ⟨10.1016/j.socec.2023.102061⟩

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Journal Article: In transparency we trust an experimental study of reputation, transparency, and signaling (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04532867

DOI: 10.1016/j.socec.2023.102061

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