Gossip and the Efficiency of Interactions

37 Pages Posted: 15 Feb 2016

See all articles by Dietmar Fehr

Dietmar Fehr

Heidelberg University - Alfred Weber Institute for Economics

Matthias Sutter

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Research on Collective Goods; University of Cologne - Department of Economics

Abstract

Human communication in organizations often involves a large amount of gossiping about others. Here we study in an experiment whether gossip affects the efficiency of human interactions. We let subjects play a trust game. Third parties observe a trustee's behavior and can gossip about it by sending a message to the trustor with whom the observed trustee will be paired (for the first time) in the next round. While messages are non-verifiable and sometimes also incorrect, the possibility of gossip is highly efficiency-increasing compared to a situation without any gossip. In two further control treatments, we show that the mere fact of being observed by third parties cannot explain the efficiency-increasing effect of gossip, and that noisy gossip (where information transmission from third parties to trustors can fail) still increases efficiency, but less so than if information transmission is undisturbed.

Keywords: gossip, communication, trust game, efficiency, experiment

JEL Classification: C72, C92

Suggested Citation

Fehr, Dietmar and Sutter, Matthias, Gossip and the Efficiency of Interactions. IZA Discussion Paper No. 9704. Available at SSRN: https://ssrn.com/abstract=2731967

Dietmar Fehr (Contact Author)

Heidelberg University - Alfred Weber Institute for Economics ( email )

Grabengasse 14
Heidelberg, D-69117
Germany

Matthias Sutter

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Research on Collective Goods ( email )

Kurt-Schumacher-Str. 10
D-53113 Bonn, 53113
Germany

University of Cologne - Department of Economics

Cologne, 50923
Germany

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