Strategic Use of Trust

University of Canterbury Working Paper

41 Pages Posted: 14 May 2008 Last revised: 28 Oct 2008

See all articles by Maroš Servátka

Maroš Servátka

Macquarie Graduate School of Management - MGSM Experimental Economics Laboratory

Steven James Tucker

University of Waikato Management School - Economics

Radovan Vadovic

Carleton University

Date Written: October 20, 2008

Abstract

While most of the previous literature interprets trust as an action, we adopt a view that trust is represented by a belief that the other party will return a fair share. The agent's action is then a commitment device that signals this belief. In this paper we propose and test a conjecture that economic agents use trust strategically. That is, the agents have incentives to inflate the perceived level of trust (the signal) in order to induce a more favorable outcome for themselves. In the experiment we study the behavior of subjects in a modified investment game which is played sequentially and simultaneously. While the sequential treatment allows for strategic use of trust, in the simultaneous treatment the first mover's action is not observed and hence does not signal her belief. In line with our prediction we find that first movers send significantly more in the sequential treatment than in simultaneous. Moreover, second movers reward trusting action, but only if it is maximal. We also find that signaling with trust enhances welfare.

Keywords: Experimental economics, Trust, Beliefs

JEL Classification: C70, C91

Suggested Citation

Servátka, Maroš and Tucker, Steven James and Vadovic, Radovan, Strategic Use of Trust (October 20, 2008). University of Canterbury Working Paper, Available at SSRN: https://ssrn.com/abstract=1132907 or http://dx.doi.org/10.2139/ssrn.1132907

Maroš Servátka (Contact Author)

Macquarie Graduate School of Management - MGSM Experimental Economics Laboratory ( email )

Sydney
Australia

Steven James Tucker

University of Waikato Management School - Economics ( email )

Hamilton
New Zealand

Radovan Vadovic

Carleton University ( email )

1125 Colonel By Drive
Ottawa, Ontario K1S 5B6
Canada

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