Trust and trustworthiness after negative random shocks

Abstract

We investigate experimentally the effect of a negative endowment shock in a trust game to assess whether different causes of inequality have different effects on trust and trustworthiness. In our trust game there may be inequality in favor of the second mover and this may (or may not) be the result of a negative random shock (i.e., the outcome of a die roll) that decreases the endowment of the first-mover. Our findings suggest that inequality leads to differences in behavior. First-movers send more of their endowment and second-movers return more when there is inequality. However, we do not find support for the hypothesis that the cause of the inequality matters. Behavior after the occurrence of a random shock is not significantly different from the behavior when the inequality exists from the outset. Our results highlight that we have to be cautious when interpreting the effects on trust and trustworthiness of negative random shocks that occur in the field (e.g., natural disasters). Our results suggest that these effects are largely driven by the inequality caused by the shock and not by any of the additional characteristics of the shock like saliency or uncertainty.

When the rich do (not) trust the (newly) rich: Experimental evidence on the effects of positive random shocks in the trust game

“…5 The current paper departs from these studies in that we consider a setting in which people already differ in their wealth, but the inequality can be eliminated if second-movers are lucky. In this way, we extend the findings of Bejarano et al (2018Bejarano et al ( , 2020 to examine how trust and trustworthiness respond to the occurrence of positive random shocks that eliminate wealth inequalities.…”

“…The most closely related papers to ours are Bejarano et al (2018Bejarano et al ( , 2020, who study how negative random shocks can influence the level of trust and trustworthiness. In both papers, the first-and the second-mover start out with the same endowment, but the occurrence of negative random shock can decrease the endowment of one of the players.…”

“…We follow the procedures in Bejarano et al (2018Bejarano et al ( , 2020 by using a variation of the trust game in Berg et al (1995) and consider the possibility that relatively richer first-movers -who start out with a higher endowment than the second-movers -behave differently depending on the level or the source of the inequality. 2 In our setting, the occurrence of a positive random shock depends on the outcome of a die roll that can eliminate the wealth inequality for specific pairs of first-and second-movers by increasing the endowment of the second-mover before the decision of the firstmover.…”

“…Bejarano et al (2018) argue (and find support for the hypothesis) that random negative shocks that affect the endowment of secondmovers can lead to differences in the behavior of first-movers by making the inequality more salient; i.e., their data suggest that richer first-movers send less to relatively poor second-movers when their wealth level is the result of a negative random shock, compared with the case in which second-movers are relatively poor from the outset. Bejarano et al (2020) focuses on the behavior of first-movers when a negative random shock can occur to them. They find that the possibility of the shock is also important to explain the behavior of first-movers, but the occurrence of the shock is not.…”

“…Bejarano et al (2020) relate their findings to the occurrence of negative random shocks (e.g., natural disasters) in the field. Their contribution is to show that these shocks may not have a different effect on trust and trustworthiness than the inequality they generate.…”