In the one-shot trust or investment game without opportunities for reputation formation or contracting, economic theory predicts no trusting because there is no incentive for trustworthiness. Under these conditions, theory predicts (a) no effect of pre-play communication, and (b) universal preference for moderate cost binding contracts over interacting without contracts. We introduce the opportunities to engage in pre-play communication and to enter binding or non-binding contracts, and find (a) communication increases trusting and trustworthiness, (b) contracts are largely unnecessary for trusting and trustworthy behaviors and are eschewed by many players, (c) more trusting leads to higher earnings, and (d) both trustors and trustees favor "fair and efficient" proposals over the more unequal proposals predicted by theory.
Bibliographical noteFunding Information:
We thank the Russell Sage Foundation for support of this research. We wish to thank John Dickhaut for helpful comments on our research design and Ting Ren for critical research assistance including data management and analysis. We are grateful to Freyr Halldorsson and Ting Ren for their help in planning and carrying out the experiments. We thank participants in the International Economic Association workshop on “Corporate Social Responsibility and Corporate Governance: The Contribution of Economic Theory and Related Disciplines,” in Trento, Italy, and in workshops in Economics at Cornell University and Applied Economics at the University of Wisconsin, for helpful comments. We are grateful to the editors and referees for numerous helpful comments.
- Trust game