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

Abstract

We study behavior in a trust game where first-movers initially have a higher endowment than second-movers but the occurrence of a positive random shock can eliminate this inequality by increasing the endowment of the second-mover before the decision of the first-mover. We find that second-movers return less (i.e., they are less trustworthy) when they have a lower endowment than first-movers, compared with the case in which first and second-movers have the same endowment. Second-movers who received the positive shock return more than those who did not; in fact, second-movers who received the positive shock return more than second-movers who had the same endowment as the first-mover from the outset. First-movers do not seem to anticipate this behavior from second-movers. They send less to second-movers who benefited from a shock. These findings suggest that in addition to the distribution of the endowments the source of this distribution plays an important role in determining the levels of trust and trustworthiness. This, in turn, implies that current models of inequality aversion should be extended to accommodate for reference points if random positive shocks are possible in the trust game.

Trust and trustworthiness after negative random shocks

“…Hence, another avenue for future research would be to empirically assess how positive random shocks shape behavior in the trust game when these positive shocks can affect the level of inequality. Bejarano et al (2021) is a paper in that direction.…”

Effects of Inequality on Trust and Reciprocity: An Experiment With Real Effort

“…In Bejarano et al (2018Bejarano et al ( , 2021b, authors analyze the inequality effect on trust and reciprocity both in a context of endowment heterogeneity and inequality generated by random shocks. They find that first-movers send less to second-movers only when the inequality results from a random shock.…”