Three‐Player Trust Game with Insider Communication

16 Pages Posted: 26 Feb 2014

Multiple version iconThere are 2 versions of this paper

Date Written: April 2014

Abstract

We examine behavior in a three‐player trust game in which the first player may invest in the second and the second may invest in the third. Any amount sent from one player to the next is tripled. The third player decides the final allocation among three players. The baseline treatment with no communication shows that the first and second players send significant amounts and the third player reciprocates. Allowing insider communication between the second and the third players increases cooperation between these two. Interestingly, there is an external effect of insider communication: the first player who is outside communication sends 54% more and receives 289% more than in the baseline treatment. As a result, insider communication increases efficiency from 44% to 68%.

JEL Classification: C72, C91, D72

Suggested Citation

Sheremeta, Roman M., Three‐Player Trust Game with Insider Communication (April 2014). Economic Inquiry, Vol. 52, Issue 2, pp. 576-591, 2014. Available at SSRN: https://ssrn.com/abstract=2401370 or http://dx.doi.org/10.1111/ecin.12018

Roman M. Sheremeta (Contact Author)

Case Western Reserve University ( email )

10900 Euclid Ave.
Cleveland, OH 44106
United States

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