Trust and Financial Trades: Lessons from an Investment Game Where Reciprocators can Hide Behind Probabilities

26 Pages Posted: 19 May 2010 Last revised: 1 Jun 2010

See all articles by Radu Vranceanu

Radu Vranceanu

ESSEC Business School; University of Cergy-Pontoise - THEMA

Angela Sutan

Burgundy School of Business - CEREN, ESC Dijon

Delphine Dubart

ESSEC Business School

Date Written: May 17, 2010

Abstract

In this paper we show that if a very small, exogenously given probability of terminating the exchange is introduced in an elementary investment game, reciprocators play more often the defection strategy. Everything happens as if they hide behind probabilities in order to break the trust relationship. Investors do no not seem able to internalize the reciprocators' change in behavior. This could explain why trades involving an exogenous risk of value destruction, such as financial transactions, provide an unfavorable environment for trust-building.

Keywords: Experimental economics, Investment game, Objective risk, Trust, Financial transactions

JEL Classification: C9, D81, G

Suggested Citation

Vranceanu, Radu and Sutan, Angela and Dubart, Delphine, Trust and Financial Trades: Lessons from an Investment Game Where Reciprocators can Hide Behind Probabilities (May 17, 2010). Available at SSRN: https://ssrn.com/abstract=1611666 or http://dx.doi.org/10.2139/ssrn.1611666

Radu Vranceanu (Contact Author)

ESSEC Business School ( email )

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HOME PAGE: http://www.essec.fr

University of Cergy-Pontoise - THEMA ( email )

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Angela Sutan

Burgundy School of Business - CEREN, ESC Dijon ( email )

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Dijon, 21006
France

Delphine Dubart

ESSEC Business School ( email )

Experimental Laboratory
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Cergy, 95021
France

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