Beneficial Betrayal Aversion

Many studies demonstrate the social benefits of cooperation. Likewise, recent studies convincingly demonstrate that betrayal aversion hinders trust and discourages cooperation. In this respect, betrayal aversion is unlike socially “beneficial” preferences including altruism, fairness and inequity aversion, all of which encourage cooperation and exchange. To our knowledge, other than the suggestion that it acts as a barrier to rash trust decisions, the benefits of betrayal aversion remain largely unexplored. Here we use laboratory experiments with human participants to show that groups including betrayal-averse agents achieve higher levels of reciprocity and more profitable social exchange than groups lacking betrayal aversion. These results are the first rigorous evidence on the benefits of betrayal aversion, and may help future research investigating cultural differences in betrayal aversion as well as future research on the evolutionary roots of betrayal aversion. Further, our results extend the understanding of how intentions affect social interactions and exchange and provide an effective platform for further research on betrayal aversion and its effects on human behavior

Do negative random shocks affect trust and trustworthiness?

We report data from a variation of the trust game aimed at determining whether (and how) inequality and random shocks that affect wealth influence the levels of trust and trustworthiness. To tease apart the effect of the shock and the inequality, we compare behavior in a trust game where the inequality is initially given and one where it is the result of a random shock that reduces the second mover’s endowment. We find that first-movers send less to second-movers but only when the inequality results from a random shock. As for the amount returned, second-movers return less when they are endowed less than first-movers, regardless of whether the difference in endowments was initially given or occurred after a random shock

Carry a big stick, or no stick at all: punishment and endowment heterogeneity in the trust game

We investigate the effect of costly punishment in a trust game with endowment heterogeneity. Our findings indicate that the difference between the investor and the allocator’s initial endowments determines the effect of punishment on trust and trustworthiness. Punishment fosters trust only when the investor is wealthier than the allocator. Otherwise, punishment fails to promote trusting behavior. As for trustworthiness, the effect is just the opposite. The higher the difference between the investor and the allocator’s initial endowments, the less willing allocators are to pay back. We discuss the consistency of our findings with social preference models (like inequality aversion, reciprocity), the capacity of punishment (i.e., the deterrence hypothesis) and hidden costs of punishment (i.e., models of intrinsic and extrinsic motivation). Our results are hardly coherent with the first two (inequality aversion and deterrence), but roughly consistent with the latter

Stereotypes and Madrassas: Experimental evidence from Pakistan

Little is known about the behavior of Madrassa (Islamic religious seminaries) students, and how other groups in their communities interact with them. To investigate this, we use data from economic decision-making experiments embedded in a survey that we collected from students pursuing bachelors-equivalent degrees in Madrassas and other educational institutions of distinct religious tendencies and socioeconomic background in Pakistan. First, we do not find that Madrassa students are less trusting of others; in fact, they exhibit the highest level of other-regarding behavior, and expect others to be the most trustworthy. Second, there is a high level of trust among all groups. Third, within each institution group, we fail to find evidence of in-group bias or systematic out-group bias either in trust or tastes. Fourth, we find that students from certain backgrounds under-estimate the trustworthiness of Madrassa students

Paradoxes and Mechanisms for Choice under Risk

Experiments on choice under risk typically involve multiple decisions by individual subjects. The choice of mechanism for selecting decision(s) for payoff is an essential design feature unless subjects isolate each one of the multiple decisions. We report treatments with different payoff mechanisms but the same decision tasks. The data show large differences across mechanisms in subjects’ revealed risk preferences, a clear violation of isolation. We illustrate the importance of these mechanism effects by identifying their implications for classical tests of theories of decision under risk. We discuss theoretical properties of commonly used mechanisms, and new mechanisms introduced herein, in order to clarify which mechanisms are theoretically incentive compatible for which theories. We identify behavioral properties of some mechanisms that can introduce bias in elicited risk preferences – from cross-task contamination – even when the mechanism used is theoretically incentive compatible. We explain that selection of a payoff mechanism is an important component of experimental design in many topic areas including social preferences, public goods, bargaining, and choice under uncertainty and ambiguity as well as experiments on decisions under risk

Is Trust a Bad Investment?

This paper examines whether trust is an investment decision under uncertainty, based on the expectation of trustworthiness, and whether trustworthiness is reciprocity, conditional on one's counterpart's behavior. In experiments run in Russia, South Africa and the United States, we find that only about one third of the subjects who trust expect to make money and that reciprocity matters in the United States but hardly in Russia and South Africa. On average, trust and trustworthiness behavior is significantly related to warm-glow kindness-with the exception of women's trust, which is almost exclusively accounted for by expectations of return. One-shot trust appears to "pay" for some but not for others. Key Words: Trust, kindness, reciprocity, gender, cross-cultural experiments.