Traditional Trust Measurement and the Risk Confound: An Experiment in Rural Paraguay

Abstract

Play in the traditional trust experiment depends both on trust beliefs and on levels of risk aversion. We ran two experiments with a diverse set of subjects in fifteen villages of rural Paraguay, the traditional trust experiment and a new experiment measuring only risk aversion. We find that risk attitudes are highly predictive of play in the trust game. In addition, omitting risk aversion as a regressor in trust regressions significantly changes the coefficients of important explanatory variables such as gender and wealth.

Keywords: Paraguay, trust, risk aversion, experiment

JEL Classification: C90, C93, D81, O10