| By: |
John Duffy (University of Pittsburgh);
Huan Xie (Concordia University);
Yong-Ju Lee (Samsung Research Institute of Finance) |
| Abstract: |
How do norms of trust and reciprocity arise? We investigate this question by
examining behavior in an experiment where subjects play a series of
indefinitely repeated trust games. Players are randomly and anonymously
matched each period. The parameters of the game are chosen to support trust
and reciprocity as a sequential equilibrium when no reputational information
is available. The main question addressed is whether a social norm of trust
and reciprocity emerges under the most extreme information restriction
(community-wide enforcement) or whether trust and reciprocity require
additional, individual-specific information about a player's past history of
play. In the absence of such reputational information, we find that a social
norm of trust and reciprocity is difficult to sustain. The provision of
reputational information on past individual decisions significantly increases
trust and reciprocity when subjects have experienced the absence of such a
mechanism. Importantly, we find that making reputational information available
at a small cost may also lead to a significant improvement in trust and
reciprocity, despite the fact that most subjects do not choose to purchase
this information. |
| Keywords: |
Social Norms, Trust Game, Random Matching, Trust and Reciprocity, Information, Reputational Information |
| JEL: |
C72 C91 C92 |
| Date: |
2008–10 |
| URL: |
http://d.repec.org/n?u=RePEc:crd:wpaper:08007&r=evo |