CERE Working Papers, CERE - the Center for Environmental and Resource Economics
Rationality, Fairness and the Cost of Distrust
() and Runar Brännlund
Abstract: An adapted version of ”the trust game with revenge” is
applied to a Swedish setting. Senders – the first-movers - can keep an
endowment of SEK 30, or give fractions or all to an unknown receiver.
Donations are multiplied by five before reaching receivers, who may, or may
not, send back part or the entire received amount. Half of the receivers
are given information that the sender has the opportunity to exact revenge,
while the remaining are not given this information. Results differ from
Fehr and Gächter (2000) J. Econ. Perspect. 14, 159-181, in the sense that
the share of endowments sent in the first stage is around two thirds,
compared to less than one third in Fehr and Gächter. Furthermore, they find
a very strong effect of punishment while we find almost no effect. An
efficiency frontier is defined and results show that that only 25 % of the
outcomes reach this frontier due to lack of trust. If senders were
confident that receivers would return at least 20 % of the donated amount,
it is optimal to donate the whole endowment. Only about one-fifth returned
of the receivers returned less than this, so for the most part the lack of
trust is unwarranted.
Keywords: experiments; trust game; revenge; efficiency frontier; (follow links to similar papers)
JEL-Codes: C91; D63; D84; (follow links to similar papers)
13 pages, February 9, 2012
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