Beliefs and Actions in the Trust Game: Creating Instrumental Variables to Estimate the Causal Effect

44 Pages Posted: 1 Feb 2010  

Miguel A. Costa-Gomes

University of Aberdeen Business School

Steffen Huck

University College London - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Georg Weizsacker

Humboldt University Berlin; DIW Berlin

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Abstract

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.

Keywords: social capital, trust game, instrumental variables, belief elicitation

JEL Classification: C72, C81, C91, D84

Suggested Citation

Costa-Gomes, Miguel A. and Huck, Steffen and Weizsacker, Georg, Beliefs and Actions in the Trust Game: Creating Instrumental Variables to Estimate the Causal Effect. IZA Discussion Paper No. 4709. Available at SSRN: https://ssrn.com/abstract=1545136

Miguel A. Costa-Gomes (Contact Author)

University of Aberdeen Business School ( email )

Dunbar Street
Aberdeen AB24 3QY, Scotland AB24 3QY
United Kingdom

Steffen Huck

University College London - Department of Economics ( email )

Gower Street
London WC1E 6BT, WC1E 6BT
United Kingdom
+44 207 679 5895 (Phone)
+44 207 916 2774 (Fax)

HOME PAGE: http://www.ucl.ac.uk/~uctpshu/

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Georg Weizsacker

Humboldt University Berlin ( email )

Spandauer Str. 1
Berlin, D-10099
Germany

DIW Berlin

Mohrenstr. 58
Berlin
Germany

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