42 Pages Posted: 10 Sep 2012 Last revised: 1 Nov 2013
Date Written: September 9, 2012
Using trust games, we study how promises and messages are used to build new trust where it did not previously exist and to rebuild damaged trust. In these games, trustees made non-binding promises of investment-contingent returns, then investors decided whether to invest, and finally trustees decided how much to return. After an unexpected second game was announced, but before it commenced, trustees could send a one-way message. This design allowed us to observe the endogenous emergence and natural distribution of trust-relevant behaviors and focus on naturally occurring remedial strategies used by promise-breakers and distrusted trustees, their effects on investors, and subsequent outcomes. In the first game 16.6% of trustees were distrusted and 18.8% of trusted trustees broke promises. Trustees distrusted in the first game used long messages and promises closer to equal splits to encourage trust in the second game. To restore damaged trust, promise-breakers used apologies and upgraded promises. On average, investments in each game paid off for investors and trustees, suggesting that effective use of cheap signals fosters profitable trust-based exchange in these economies.
Keywords: promise, atonement, apology, cheap talk, cheap signals, trust game, trust building, remedial strategies, reciprocity, experiments
Suggested Citation: Suggested Citation
Schniter, Eric and Sheremeta, Roman M. and Sznycer, Daniel, Building and Rebuilding Trust with Promises and Apologies (September 9, 2012). Schniter, E. , Sheremeta, R.M., Sznycer, D. (2013). Building and rebuilding trust with promises and apologies. Journal of Economic Behavior and Organization. 94: 242-256.. Available at SSRN: https://ssrn.com/abstract=2144021 or http://dx.doi.org/10.2139/ssrn.2144021