An experimental analysis of trust and trustworthiness.

1. Introduction

A large body of evidence suggests that "social capital" as embodied in the tendencies to "trust" and to "reciprocate" trust influences a wide range of economic phenomena and activities (Fukuyama 1995; Knack and Keefer 1997; La Porta et al. 1997; Putnam 2000). There is now a large body of experimental literature that explores such trusting and reciprocal motivations in economic transactions. (See Camerer [2003] for a review.) Many of these papers have used the trust game introduced by Berg, Dickhaut, and McCabe (1995) or variants thereof to measure trust and reciprocity]"2 The findings of these researchers have in turn led to the development of theoretical models that explicitly incorporate such noneconomic motivations in decision making as in Rabin (1993), Fehr and Schmidt (1999), and Bolton and Ockenfels (2000). Both the inequity aversion model of Fehr and Schmidt (1999) and the Equity, Reciprocity, and Competition model of Bolton and Ockenfels (2000), which assumes that players care about both their pecuniary payoff as well as their relative standing vis-a-vis others in the group, can explain the rationale behind trusting and reciprocal behavior in sequential prisoners' dilemmas such as the Berg, Dickhaut, and McCabe (1995) trust game or the Fehr, Gachter, and Kirchsteiger (1997) gift exchange game. (3)

In this paper we wish to further explore facets of trusting and reciprocal behavior. Each subject in our study takes part in a dictator game and a trust game where the dictator game acts as a control treatment. (4) We find that transfers are significantly higher in the trust game compared with the dictator game and we argue that expectations regarding reciprocation play a significant role in the decision to send money. (5) Second, we find that there is substantial evidence in favor of positive reciprocity in the sense that receivers do return money to the senders given the opportunity and the amount returned is positively correlated with the amount received. Third, we explore the connection between trust and reciprocity. We show that subjects who are "trustworthy" (defined as subjects who reciprocate the trust placed on them), are also more trusting. But the converse is not true--subjects who appear to be trusting do not necessarily reciprocate the trust of others. Furthermore, when it comes to the dictator game trustworthy subjects behave in a more generous manner. We also explore gender differences in these decisions and show that men exhibit significantly higher levels of trust but the two groups do not differ significantly in their levels of reciprocity. We argue that the lower level of trust exhibited by women may be attributed to a greater degree of risk aversion.

The rest of the paper is organized as follows: section 2 explains the experimental design, section 3 presents the results, and section 4 concludes.

2. Experimental Design

A total of 100 subjects--7 men and 53 women--participated in the experiments in groups of 8 to 14. They were mostly undergraduate students ranging in age from 17 to 27. All the experiments were implemented as non-computerized classroom experiments. We used a within-subjects design that allows for powerful comparison across our control treatment (the dictator game) and the trust game treatment. To control for ordering effects, in half of the sessions (comprised of 52 subjects) subjects participated in the dictator game first and then in the trust game, while the remaining 48 played the trust game first, followed by the dictator game.

There are two features of the design that are different from the Berg, Dickhaut, and McCabe trust game. First, in our experiment each subject makes a sender as well as a receiver decision. Our design is similar to the one used by Chaudhuri, Sopher, and Strand (2002) as well as the "two-role-trust prior knowledge" treatment employed by Burks, Carpenter, and Verhoogen (2003). The following example illustrates how the senders and receivers were matched.

In this example, Subject #1 would make a sender decision and offer a split to Subject #5 as the receiver. At the same time, Subject #1 would receive a split as receiver from Subject #8, who is the sender, and so on. This preserves the one-shot nature of the interaction since each subject interacts with a different subject in her role as a sender and a receiver and thus there is no scope for reputation building. Since we have both a sender and a receiver decision for each subject, this allows us to measure the levels of trust and reciprocity for that subject. All subjects make the sender decision simultaneously. We also asked each sender (provided she transferred a positive sum to the paired receiver) if she expected the receiver to return any money and, if she did, what proportion she expected the receiver to return. Following this all subjects make a receiver decision simultaneously.

Given that each subject plays both roles in the trust game--that of sender and receiver-we have each subject play both roles of allocator and recipient as well in the dictator game. They are always paired with a different subject in each role as they are in the trust game along the lines explained above. Each player then actually plays four different roles--sender and receiver in the trust game and allocator and recipient in the dictator game--except each player is paired with a different player in each of those roles.

The second feature that is different is that, at the receiver's decision level in the trust game, we have data from actual decisions that the subjects made in their role as a receiver as well as data on their reciprocity levels elicited via the strategy method. The subjects were asked, before they knew how much they had received as a receiver, how much they would return to the sender if they received different hypothetical amounts of money. We discuss the consistency of responses using the two methods below.

Experimental Procedure

For each session, subjects were gathered in a room where they had instructions read to them. A show-up fee of $3.00 was given to the subjects. (6) The subjects were divided into two equal-sized groups. One group stayed in the same room while the other group was sent to an adjoining room. The subjects were paired anonymously. The first and second movers in each pair were always in different rooms and could not see one another and did not know who they were paired with. Each group consisted of a mixture of the sexes and there were no same-sex groups. At the end of the experiment all subjects filled out a demographic survey.

Suppose the session starts with the trust game followed by the dictator game. All subjects had $10.00 added to their total experimental earnings. No money was disbursed at that point and all actual payments were made at the end of the experiment. Each subject was told that in her role as the sender in the trust game she could keep the entire $10.00 or, if she wished, she could split it (in whole dollar amounts) with an anonymous receiver. But any amount offered to the anonymous receiver would be tripled by the experimenter. The anonymous receiver then could decide to keep the entire amount of money offered or, if he wished, could send all or part of it back to the anonymous sender. This latter amount is not tripled. (7) Once the trust game decisions have been made we move on to the dictator game. Each subject is given another $10.00 and makes a decision about how to split it with the anonymous recipient.

Subjects make their decisions using record sheets. (See the Appendix for the instructions to the subjects and the record sheets.) Decisions made by a first mover in one room are conveyed to the corresponding second mover in the other room and vice versa. The record sheets were collected by the experimenter and taken from room to room. (8) In the dictator game, none of the decisions are revealed to the subjects concerned until the very end of the session. In the trust game we have to reveal to the receiver the amount of money sent to him by the paired sender. Other than that, all other decisions and the amounts of money they have earned are revealed to the subjects at the very end of the session. This was done so that a subject's decision in the second game will not be unduly influenced by his earnings in the first game. This way subjects are not completely informed about their total earnings in the two games until the very end of the session.

In the trust game, prior to each subject making the actual receiver decision, we also elicited information about their reciprocity levels by using the strategy method. Specifically, each subject was asked how much she would return if she received a certain amount. Since senders are constrained to transfer money in whole dollars ranging from {$1 ... $10}, this implied that receivers could expect to get one of the ten amounts {$3, $6, $9, $12, $15, $18, $21, $24, $27, $30}. Receivers were asked to indicate how much they would return if they received each of these hypothetical amounts. Answers to this question allow us to examine the level of reciprocity of the receivers. The answer in each case from a purely self-interested perspective should be $0. However, those who are motivated by reciprocity are expected to promise to send back more when they receive more. Then they were informed about the money they had actually been offered. This allows us to examine their actual reciprocity explicitly as well as to compare their actual behavior with their stated behavior.

3. Results

Transfers in the Trust Game Are Significantly Higher than Those in the Dictator Game