Trust and Trustworthiness in Networked Exchange

Abstract:     
This paper focuses on the interaction between network structure, the role of information, and the level of trust and trustworthiness in 3-node networks. We extend the investment game with one Sender and one Receiver to networked versions – one characterized by one Sender and two Receivers ([1s-2r]) and one characterized by two Senders and one Receiver ([2s-1r]) – under two information conditions, full and partial. We develop a comparative model of trust for the networked exchange environments and generate two hypotheses: (1) what counts as a signal of trust depends on investment behavior along the other link in the network and (2) this type of trust can be leveraged under full information, increasing the rate of cooperation on the side of the exchange with multiple traders. The results generally support our hypotheses: trust is comparative and under full information, the [1s-2r] network shows higher trustworthiness and the [2s-1r] network displays higher trust.

Number of Pages in PDF File: 22

Keywords: trust, reciprocity, networks, investment, experiments

JEL Classification: C91, D00, L14

Accepted Paper Series