Limitations to Signaling Trust with All or Nothing Investments

11 Pages Posted: 10 Oct 2013 Last revised: 24 Nov 2013

See all articles by Eric Schniter

Eric Schniter

Chapman University - George L. Argyros School of Business and Economics - Economic Science Institute

Roman M. Sheremeta

Case Western Reserve University

Timothy W. Shields

Chapman University - George L. Argyros School of Business & Economics; Chapman University - Economic Science Institute

Date Written: October 8, 2013

Abstract

Many economic interactions are characterized by “all or nothing” action spaces that may limit a demonstrable index of trust and, therefore, the propensity to reciprocate. In two experimental trust games, the action space governing investments was manipulated to examine the effects on investments and reciprocity. In the continuous game the investor could invest any amount between $0 and $10, while in the binary game the investor could invest either $0 or $10. In both games, the trustee received the tripled investment and then could return any amount back to the investor. Investors invested significantly more in the binary game than in the continuous game. However, higher investments in the binary game did not lead to more reciprocity. To the contrary, conditional on investment of $10, on average trustees returned significantly less in the binary game than in the continuous game.

Keywords: trust game, signaling, demonstrable index of trust, reciprocity, experiments

Suggested Citation

Schniter, Eric and Sheremeta, Roman M. and Shields, Timothy W., Limitations to Signaling Trust with All or Nothing Investments (October 8, 2013). Available at SSRN: https://ssrn.com/abstract=2337733 or http://dx.doi.org/10.2139/ssrn.2337733

Eric Schniter

Chapman University - George L. Argyros School of Business and Economics - Economic Science Institute ( email )

One University Dr.
Orange, CA 92866
United States

HOME PAGE: http://sites.google.com/site/ericschniter/

Roman M. Sheremeta

Case Western Reserve University ( email )

10900 Euclid Ave.
Cleveland, OH 44106
United States

Timothy W. Shields (Contact Author)

Chapman University - George L. Argyros School of Business & Economics ( email )

One University Drive
Orange, CA 92866
United States
714.289.2092 (Phone)

HOME PAGE: http://sites.google.com/site/timothywshields/

Chapman University - Economic Science Institute ( email )

One University Dr.
Orange, CA 92866
United States

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