Using Experimental Economics to Measure Social Capital and Predict Financial Decisions

21 Pages Posted: 18 Apr 2005

See all articles by Dean S. Karlan

Dean S. Karlan

Yale University; Innovations for Poverty Action; Massachusetts Institute of Technology (MIT) - Abdul Latif Jameel Poverty Action Lab (J-PAL); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Date Written: April 2005

Abstract

Questions remain as to whether results from experimental economics games are generalizable to real decisions in non-laboratory settings. Furthermore, important questions persist about whether social capital can help solve seemingly missing credit markets. I conduct two experiments, a Trust game and a Public Goods game, and a survey to measure social capital. I then examine whether behavior in the games predicts repayment of loans to a Peruvian group lending microfinance program. Since the structure of these loans relies heavily on social capital to enforce repayment, this is a relevant and important test of the games, as well as of other measures of social capital. I find that individuals identified as trustworthy by the Trust game are in fact less likely to default on their loans. I do not find similar support for the Trust game as a measure of trust.

Keywords: trust game, experimental economics, microfinance

JEL Classification: B4, C9, D8, O1

Suggested Citation

Karlan, Dean S., Using Experimental Economics to Measure Social Capital and Predict Financial Decisions (April 2005). Yale University Economic Growth Center Discussion Paper No. 909. Available at SSRN: https://ssrn.com/abstract=706501

Dean S. Karlan (Contact Author)

Yale University ( email )

Box 208269
New Haven, CT 06520-8269
United States

Innovations for Poverty Action ( email )

1731 Connecticut Ave, 4th floor
New Haven, CT 20009
United States

Massachusetts Institute of Technology (MIT) - Abdul Latif Jameel Poverty Action Lab (J-PAL) ( email )

E60-246
77 Massachusetts Avenue
Cambridge, MA 02139
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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