Distinguishing Trust from Risk: An Anatomy of the Investment Game

University of Zurich Institute for Empirical Research in Economics Working Paper No. 450

35 Pages Posted: 17 Oct 2009

See all articles by Daniel Houser

Daniel Houser

Interdisciplinary Center for Economic Science

Daniel Schunk

Johannes Gutenberg University Mainz - Gutenberg School of Economics and Management; University of Zurich - Department of Economics

Joachim K. Winter

Ludwig Maximilian University of Munich (LMU); CESifo (Center for Economic Studies and Ifo Institute); Max Planck Society for the Advancement of the Sciences - Munich Center for the Economics of Aging (MEA); Deutsche Bundesbank - Research Department

Date Written: October 16, 2009

Abstract

The role of trust in promoting economic activity and societal development has received considerable academic attention by social scientists. A popular way to measure trust at the individual level is the so-called “investment game” (Berg, Dickhaut, and McCabe, 1995). It has been widely noted, however, that risk attitudes can also affect decisions in this game, and thus in principle confound inferences about trust. We provide novel evidence shedding light on the role of risk attitudes for trusting decisions. To the best of our knowledge our data are the first rigorous evidence that (i) aggregate investment distributions differ significantly between trust and risk environments, and (ii) risk attitudes predict individual investment decisions in risk games but not in the corresponding trust games. Our results are convergent evidence that trust decisions are not tightly connected to a person’s risk attitudes, and they lend support to the “trust” interpretation of decisions in investment games.

Suggested Citation

Houser, Daniel and Schunk, Daniel and Winter, Joachim K., Distinguishing Trust from Risk: An Anatomy of the Investment Game (October 16, 2009). University of Zurich Institute for Empirical Research in Economics Working Paper No. 450, Available at SSRN: https://ssrn.com/abstract=1489785 or http://dx.doi.org/10.2139/ssrn.1489785

Daniel Houser (Contact Author)

Interdisciplinary Center for Economic Science ( email )

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Daniel Schunk

Johannes Gutenberg University Mainz - Gutenberg School of Economics and Management ( email )

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University of Zurich - Department of Economics ( email )

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Joachim K. Winter

Ludwig Maximilian University of Munich (LMU) ( email )

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