Trust

Trust is a behavioral phenomenon present in economic and social activities. It can easily be confused with altruism or a different type of other-regarding preferences. However, it is often the case that the behavior of an agent is characterized by both. In certain scenarios the presence of trust enables to achieve mutually better outcomes for all participating parties through engaging in common projects, such as trade transactions, investment, employment, relationship, marriage, or friendship. In most instances trust creates conditions for a positive reciprocation of the other party. The notion of trust was for the first time explored in an experimental setting by Berg, Dickhaut, and McCabe [1995] in a study employing the investment game. The study investigates whether the trust is a primitive present in economic models of behavior after eliminating mechanisms which could sustain investment without trust, such as reputation from repeated interactions, contractual precommitments, and potential punishment threats.

Examples of Trust

• Buying a product from a seller in an online auction involves trust that the quality of the item is as described.
• If a firm pays a higher wage to an employee, it might mean that the firm trusts the worker to exert more effort.
• Trust in faithfullness of the spouse in a marriage.
• Trust in reliability of a friend.

Trust in an Experimental Setting

Consider the following scenario in a moonlighting game: "Agent 1 undertakes an action that exhibits trust if the chosen action: ( a ) creates a monetary gain that could be shared with agent 2; and ( b ) exposes agent 1 to the risk of a loss of utility if agent 2 defects and appropriates too much of the monetary gain. [Cox, Sadiraj, and Sadiraj 2002.]

Note that the above definition of observable trust incorporates a possible dependence of the inferred preferences over outcomes on the process that generates those outcomes and attributions of the intentions of others. The triadic experimental design described in the sections on the moonlighting game and dictator game makes it possible to discriminate between the implications of other-regarding preferences and trust, fear, or reciprocity. A more detailed discussion is included in Advanced Discussion on Separating Various Motives of Behavior in the Moonlighting Game subsection.

Other examples of trust in an experimental setting can be found in the following games:

• Investment Game
• Moonlighting Game
• Trust Game
• Wage-Effort Game

Further Readings

1. Abbink, Klaus, Bernd Irlenbusch, and Elke Renner, "The Moonlighting Game: An Empirical Study on Reciprocity and Retribution." Journal of Economic Behavior and Organization, 42, 2000, pp.265-77.
2. Berg, Joyce, John Dickhaut, and Kevin McCabe, "Trust, Reciprocity, and Social History." Games and Economic Behavior, July 1995, 10(1), pp. 122-42.
3. Cox, James C., "How to Identify Trust and Reciprocity," Games and Economic Behavior, 46, 2004, pp. 260-281.
4. Cox, James C., "Implications of Game Triads for Observations of Trust and Reciprocity," University of Arizona discussion paper, September 1999, revised 2000.
5. Cox, James C., "Trust and Reciprocity: Implications of Game Triads and Social Contexts," University of Arizona discussion paper, September 1999, revised 2000.
6. Cox, James C., Klarita Sadiraj, and Vjollca Sadiraj, "Implications of Trust, Fear, and Reciprocity for Modeling Economic Behavior," University of Arizona discussion paper, 2004.