Trustworthy by Design

41 Pages Posted: 12 Apr 2021

See all articles by Sen Geng

Sen Geng

Xiamen University - Wang Yanan Institute for Studies in Economics (WISE)

Menglong Guan

University of California, Santa Barbara

Date Written: March 22, 2021

Abstract

We explore theoretically and experimentally whether information design can be used by trustees as a signaling device to boost trusting acts in once-off interactions. In our main setting, a trustee partially or fully decides a binary payoff allocation and designs an information structure, then a trustor decides whether to invest. In the control setting, information design is not available. Both the equilibrium model and a model of heterogeneity in prosociality and strategic sophistication predict that introducing information design increases trustworthiness and trusting acts. The second model also generates a distinctive prediction: Whether trustees optimally choose full trustworthiness with the most informative structure or zero trustworthiness with the least informative structure depends on trustors’ anticipation of the association between trustworthiness and informativeness. The observed treatment effects are in line with both models’ predictions, and the observed behavioral patterns are better explained by the second model.

Keywords: trust, trustworthiness, information design, strategic sophistication, prosociality

JEL Classification: C92, D82, D83, D91, M31

Suggested Citation

Geng, Sen and Guan, Menglong, Trustworthy by Design (March 22, 2021). Available at SSRN: https://ssrn.com/abstract=3824164 or http://dx.doi.org/10.2139/ssrn.3824164

Sen Geng (Contact Author)

Xiamen University - Wang Yanan Institute for Studies in Economics (WISE) ( email )

A 307, Economics Building
Xiamen, Fujian 10246
China

Menglong Guan

University of California, Santa Barbara ( email )

North Hall 2047
Santa Barbara, CA 93106
United States

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