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Design Your Trustworthiness

Sen Geng and Menglong Guan ()
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Menglong Guan: UC Santa Barbara

No GRU_2020_019, GRU Working Paper Series from City University of Hong Kong, Department of Economics and Finance, Global Research Unit

Abstract: One realistic market innovation to tackle social dilemma involving trust is that trustees take the lead in fostering trust by designing information about trustworthiness. We propose two novel experimental games to study the causal effect of such information design on trustworthiness and trust, and also to explore the underlying mechanism. Experimental data from a within-subject design shows that the treatment effect is generally consistent with equilibrium analysis in terms of direction but not magnitude, and several behavioral patterns deviate considerably from the prediction. We then propose a model allowing for subjects’ heterogeneity in prosociality and strategic sophistication that rationalizes the data. We apply the maximum likelihood estimation method to estimate each subject’s behavioral type and find that the estimated type almost fully coincides with the type prescribed by the model and is largely consistent with the type assigned by an intuitive criterion. We finally provide evidence that prosociality and strategic sophistication is orthogonal.

Keywords: trust; trustworthiness; information design; prosociality; strategic sophistication (search for similar items in EconPapers)
JEL-codes: C92 D82 D83 D91 M31 (search for similar items in EconPapers)
Pages: 61 pages
Date: 2020-07-26
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