When the Rich Do (Not) Trust the (Newly) Rich: Experimental Evidence on the Effects of Positive Random Shocks in the Trust Game

Hernan Bejarano, Joris Gillet and Ismael Rodriguez-Lara
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Joris Gillet: Middlesex University London

No 96, Working Papers from Red Nacional de Investigadores en Economía (RedNIE)

Abstract: We study behavior in a trust game where first-movers initially have a higher endowment than second-movers but the occurrence of a positive random shock can eliminate this inequality by increasing the endowment of the second-mover before the decision of the first-mover. We find that second-movers return less (i.e., they are less trustworthy) when they have a lower endowment than first-movers, compared with the case in which first and second-movers have the same endowment. Second-movers who have experienced the positive shock return more than those who did not; in fact, second-movers who have experienced the positive shock return more than secondmovers who had the same endowment as the first-mover from the outset. First-movers do not seem to anticipate this behavior from second-movers. They send less to secondmovers who benefited from a shock. These findings suggest that in addition to the distribution of the endowments the source of this distribution plays an important role in determining the levels of trust and trustworthiness. This, in turn, implies that current models of inequality aversion should be extended to accommodate for reference points if random positive shocks are possible in the trust game.

Keywords: Trust game; endowment heterogeneity; random shocks; luck; inequality; aversion; reference-dependent utility; reference points. (search for similar items in EconPapers)
JEL-codes: C91 D02 D03 D69 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2021-12
New Economics Papers: this item is included in nep-cbe, nep-exp, nep-gth, nep-soc and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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https://rednie.eco.unc.edu.ar/files/DT/96.pdf (application/pdf)

Related works:
Working Paper: When the rich do (not) trust the (newly) rich: Experimental evidence on the effects of positive random shocks in the trust game (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:aoz:wpaper:96

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