Words Speak Louder Than Money

Should one use words or money to foster trust of the other party if no means of enforcing trustworthiness are available? This paper reports an experiment studying the effectiveness of two types of mechanisms for promoting trust: a costly gift and a costless message as well as their mutual interaction. We nest our findings in the standard version of the investment game. Our data provide evidence that while both stand-alone mechanisms enhance trust, and a gift performs significantly worse than a message. Moreover, when a gift is combined with sending a message, it can be counterproductive.Communication; content analysis; experimental economics; gift giving; investment game; message; trust; trustworthiness

Status Quo Effects in Fairness Games: Acts of Commission vs. Acts of Omission

Intent to help or harm is revealed more clearly by acts of commission that overturn the status quo than by acts of omission that uphold it. Both the law and culture make a central distinction between the two types of acts. Acts of commission elicit stronger reciprocal responses than do acts of omission. In this paper we compare reciprocal responses to both types of acts and ask whether behavior of subjects in two experiments is consistent with existing theory. The design of the experiments focuses on the axioms of revealed altruism theory (Cox, Friedman, and Sadiraj, 2008) that make it observationally distinct from other theories, Axiom R (for reciprocity) and Axiom S (for status quo). We find support for this theory in both experiments.

Sequential vs. Simultaneous Trust

We examine theoretically and experimentally the implications of trust arising under sequential and simultaneous designs, where one player makes an investment choice, and another player decides whether to share the investment gains. We show analytically that in some cases the sequential design may be outperformed by the simultaneous design. In an experiment we find that the investment levels and sharing rates are higher in the sequential design, but there are no corresponding differences in beliefs. We conjecture that this happens because in the sequential design substantially more trust is necessary to induce cooperation. Our data strongly support this conjecture

Honesty and Informal Agreements

We develop, and experimentally test, models of informal agreements. Agents are assumed to be honest but suffer costs of overcoming temptations. We extend two classical bargaining solutions -- split-the-difference and deal-me-out -- to this informal agreement setting. For each solution there are two natural ways to do this, leaving us with 2x2 models to explore. In the experiment, a temptations-constrained version of deal-me-out emerges as the clear winner

Free to Choose: Testing the Pure Motivation Effect of Autonomous Choice

We conduct an experimental test of the long-standing conjecture that autonomy increases motivation and job performance. Subjects face a menu consisting of two projects: one risky and one safe. The probability that the risky project succeeds depends on the subject's effort. In one treatment, subjects choose a project from the menu; in the other treatment, they are assigned a project from the menu. Using a difference-in-difference approach that controls for selection effects, we show that autonomy (the right to choose a project) has a significant pure motivation effect on effort. The effect is consistent with aversion to anticipated regret, but not with standard expected-utility maximization. Futher, as predicted by regret theory, effort on the (chosen) risky project is increasing in the return to the (unchosen) safe project, and the pure motivation effect is greater, the riskier is the risky project. Finally, we find a significant negative relationship between the strength of the pure motivation effect and the subjects' expected earnings

Honesty in the City

Lab evidence on trust games involves more cooperation than conventional economic theory predicts. We explore whether this pattern extends to a field setting where (much like in a lab) we are able to control for (lack of) repeat-play and reputation: cab drivers in Mexico City. We find a remarkably high degree of trustworthiness, also with price-haggling, which is predicted to reduce trustworthiness

Attainment of Equilibrium via Marshallian Path Adjustment: Queueing and Buyer Determinism

We examine equilibration in a market where Marshallian path adjustment can be enforced, or not, as a treatment: a posted offer market either with buyer queueing via value order, or random order, respectively. We derive equilibrium predictions, and run experiments crossing queueing rules with either human or deterministically optimizing robot buyers under both locally stationary and nonstationary marginal cost. Results on rate of convergence to competitive equilibrium are obtained, and Marshallian path adjustment is established as conducive to attaining competitive equilibrium

Against all odds: Tentative steps toward efficient information sharing in groups

When groups face difficult problems, the voices of experts may be lost in the noise of others’ contributions. We present results from a “naturally noisy” setting, a large first-year undergraduate class, in which the expert’s voice was “lost” to such a degree that bringing forward even more inferior information was optimal. A single individual had little chance to improve the outcome and coordinating with the whole group was impossible. In this setting, we examined the change in behavior before and after people could talk to their neighbors. We found that the number of people who reduced noise by holding back their information strongly and significantly increased

Attainment of Equilibrium: Marshallian Path Adjustment and Buyer Determinism

We examine equilibration in a market where Marshallian path adjustment can be enforced, or not, as a treatment: a posted offer market either with buyer queueing via value order, or random order, respectively. We derive equilibrium predictions, and run experiments crossing queueing rules with either human or deterministically optimizing robot buyers under both locally stationary and nonstationary marginal cost. Results on rate of convergence to competitive equilibrium are obtained, and Marshallian path adjustment is established as conducive to attaining competitive equilibrium