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

45 Pages Posted: 23 Apr 2010

See all articles by Miguel A. Costa-Gomes

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 Weizsäcker

German Institute for Economic Research (DIW Berlin)

Multiple version iconThere are 2 versions of this paper

Date Written: January 1, 2010

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 Weizsäcker, Georg, Beliefs and Actions in the Trust Game: Creating Instrumental Variables to Estimate the Causal Effect (January 1, 2010). DIW Berlin Discussion Paper No. 969. Available at SSRN: https://ssrn.com/abstract=1594790 or http://dx.doi.org/10.2139/ssrn.1594790

Miguel A. Costa-Gomes (Contact Author)

University of Aberdeen Business School ( email )

Dunbar Street
Aberdeen, 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 Weizsäcker

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

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