Do Negative Random Shocks Affect Trust and Trustworthiness?

Abstract

We report data from a variation of the trust game aimed at determining whether (and how) inequality and random shocks that affect wealth influence the levels of trust and trustworthiness. To tease apart the effect of the shock and the inequality, we compare behavior in a trust game where the inequality is initially given and one where it is the result of a random shock that reduces the second mover's endowment. We find that first-movers send less to second-movers but only when the inequality results from a random shock. As for the amount returned, second-movers return less when they are endowed less than first-movers, regardless of whether the difference in endowments was initially given or occurred after a random shock.

Trust and trustworthiness after negative random shocks

“…A total of 402 students (with no previous experience in similar experiments) participated in our experiment. We followed Bejarano et al (2018) in determining the sample size. The experimental sessions were conducted at the Economic Science Institute (ESI) Chapman University between May 2014 and May 2018.…”

“…If first-movers refrain from sending money to second movers, there is a negative signal of distrust, thus people may be more willing to take risk in trust games than in lotteries (Fetchenhauer & Dunning 2012, Dunning et al 2019, Fetchenhauer et al 2020. As Bejarano et al (2018) argue, the occurrence of the shock can indeed make the inequality more salient. Thus first-movers may want to show signs of "principled trustfulness" after being decreased their endowment.…”

“…2 To the best of our knowledge our paper is one of the first to incorporate the possibility of a negative random that affects the endowment of the first-mover to determine how different sources of inequality affect behavior in the trust game. The only other exception we know is Bejarano et al (2018), who examine this question in a situation where the negative random shock can decrease the endowment of the second-mover. Their results indicate that first-movers send less to second-movers who have a lower endowment, but only when the inequality is the result of a negative random shock.…”

Crime-Related Exposure to Violence and Social Preferences: Experimental Evidence from Bogotá

“…However, naturally occurring situations make inequality due to random shocks salient, potentially inducing lower pro-social behavior. In fact, we know from a controlled experiment by Bejarano et al (2018) that in an investment game (Berg et al, 1995) with shock-induced inequality, there is less trust by senders. On the other hand, economic shock occurring as a result of ETV focuses attention on the author rather than the environment, making victims more collaborative with no perpetrators.…”

Altruismo y reciprocidad en el largo plazo

“…The present paper has in common with Bejarano et al (2018) that individuals are exposed to negative (and positive) shocks. While they analyze the effects of these shocks in a one shot Trust Game, I present the analysis in Bilateral Dictator Game 1…”