An Investment Game with Third-Party Intervention

30 Pages Posted: 27 Sep 2007

See all articles by Gary Charness

Gary Charness

University of California, Santa Barbara (UCSB) - Department of Economics

Ramon Cobo-Reyes

University of Granada - Campus de Fuentenueva

Natalia Jimenez

University of Granada - Campus de Fuentenueva

Date Written: April 16, 2007

Abstract

This paper explores the effect of the possibility of third-party intervention on behavior in a variant of the Berg, Dickhaut, and McCabe (1995) "Investment Game". A third-party's material payoff is not affected by the decisions made by the other participants, but this person may choose to punish a responder who has been overly selfish. The concern over this possibility may serve to discipline potentially-selfish responders. We also explore a treatment in which the third party may also choose to reward a sender who has received a low net payoff as a result of the responder's action. We find a strong and significant effect of third-party punishment, in both punishment regimes, as the amount sent by the first mover is more than 60% higher when there is the possibility of third-party punishment. We also find that responders return a higher proportion of the amount sent to them when there is the possibility of punishment, with this proportion slightly higher when reward is not feasible. Finally, third parties punish less when reward is feasible, but nevertheless spend more on the combination of reward and punishment when these are both permitted than on punishment when this is the only choice for redressing material outcomes.

Keywords: Trust, punishment, third-party intervention, responsibility-alleviation

JEL Classification: A13, B49, C91, D63

Suggested Citation

Charness, Gary and Cobo-Reyes, Ramon and Jimenez, Natalia, An Investment Game with Third-Party Intervention (April 16, 2007). Available at SSRN: https://ssrn.com/abstract=955390 or http://dx.doi.org/10.2139/ssrn.955390

Gary Charness (Contact Author)

University of California, Santa Barbara (UCSB) - Department of Economics ( email )

2127 North Hall
Santa Barbara, CA 93106
United States
805-893-2412 (Phone)
805-893-8830 (Fax)

Ramon Cobo-Reyes

University of Granada - Campus de Fuentenueva ( email )

Granada
Spain

Natalia Jimenez

University of Granada - Campus de Fuentenueva ( email )

Granada
Spain