Beliefs and Actions in the Trust Game: Creating Instrumental Variables to Estimate the Causal Effect
Miguel A. Costa-Gomes
University of Aberdeen Business School
University College London - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); Institute for the Study of Labor (IZA)
Humboldt University Berlin; DIW Berlin
IZA Discussion Paper No. 4709
In many economic contexts, an elusive variable of interest is the agent's expectation about relevant events, e.g. about other agents' behavior. Recent experimental studies as well as surveys have asked participants to state their beliefs explicitly, but little is known about the causal relation between beliefs and other behavioral variables. This paper discusses the possibility of creating exogenous instrumental variables for belief statements, by shifting the probabilities of the relevant events. We conduct trust game experiments where the amount sent back by the second player (trustee) is exogenously varied by a random process, in a way that informs only the first player (trustor) about the realized variation. The procedure allows detecting causal links from beliefs to actions under plausible assumptions. The IV estimates indicate a significant causal effect, comparable to the connection between beliefs and actions that is suggested by OLS analyses.
Number of Pages in PDF File: 44
Keywords: social capital, trust game, instrumental variables, belief elicitation
JEL Classification: C72, C81, C91, D84
Date posted: February 1, 2010
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