Epistemic Conditions and Social Preferences in Trust Games

Abstract

It is well-known that subjects in bilateral bargaining experiments often exhibit choice behavior suggesting there are strong reciprocators in the population. But it is controversial whether explaining this data requires a social preference model that invokes genuine strong reciprocity or whether some social preference model built on other-regarding preferences as a surrogate can explain it. Since the data precedes theory here, all the social preference models agree on most of it — making direct tests more difficult. We report results from a laboratory experiment using a novel method for testing between the classes of social preference models in the trust game that manipulates the distribution of payoff information in the game. We find evidence supporting the strong reciprocity hypothesis