Trust and trustworthiness reputations in an investment game

doi:10.1016/j.geb.2010.09.002

Games and Economic Behavior

Volume 72, Issue 2, June 2011, Pages 361-375

https://doi.org/10.1016/j.geb.2010.09.002 Get rights and content

Abstract

Trust is an essential component of good social outcomes and effective economic performance. Reputation on the trusteeʼs past behavior in the same role has proven to be greatly effective at raising the level of trust. In this study, we show that providing information on the trusteeʼs past behavior as the trustor is equally effective as a reputation system. In fact, people still find it worthwhile to invest in a reputation as a trusting person, even though the immediate payoff for trusting is poor. This confirms the role of indirect reciprocity as a strategic notion based on reputation, whereby pro-social actions by one person towards a second person are sanctioned by a third party.

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Does a leader's self-assessed integrity matter?
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We investigate the impact of leaders’ integrity on group behavior in a single-shot collective action game. Leaders have exclusive knowledge of their group projects and lead via cheap-talk investment suggestions. Followers observe the suggestion but not their leader's actual decision. Leaders can sometimes benefit from deceiving their followers (suggesting invest without actually investing themselves). In our Baseline condition, followers only observe their leaders’ suggestions. We have three treatments: Integrity, followers additionally observe leaders’ self-assessed integrity category; Random, followers additionally observe a randomly chosen group member's integrity category; Driving, followers additionally observe leaders’ self-assessed driving skill category. On average, the likelihood that leaders follow their own investment suggestions in the treatments does not differ significantly from the Baseline. Likewise, on average, the frequency at which followers invest, having observed an invest suggestion, does not differ significantly in the treatments from the Baseline. When an integrity categorization is revealed, the category revelation influences followers’ investment decisions. Followers receiving invest suggestions from leaders categorized as average/low integrity invest at approximately half the rate as followers receiving invest suggestions from leaders categorized as high integrity. Revealing that a random member is categorized as average/low integrity, however, does not negatively affect followers’ investment rate.
Evolution of trust in a hierarchical population with punishing investors
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Citation Excerpt :
Trust has a fundamental impact on how human society evolves [1–11].
Trust plays an essential role in the development of human society. According to the standard trust game, an investor decides whether to keep or transfer a certain portion of initial stake to a trustee. In the latter case, the stake is enhanced to signal the value of trust. The trustee then chooses how much to return to the investor. We here distinguish two types of investors and two types of trustees who can learn from each other. While a trustee can be trustworthy or untrustworthy, an investor could be normal or punishing one. The latter strategy punishes both untrustworthy trustees and normal investors who are reluctant to control misbehaving trustees. Importantly, we assume a hierarchical population where the portion of investors and trustees is fixed. By means of replicator equation approach, we study the N-player trust game and calculate the level of trust and trustworthiness. We find that the introduction of punishment can induce a stable coexistence state between punishing investors and trustworthy trustees. Furthermore, an intermediate fraction of investors can better promote the evolution of trust when the punishment intensity is low. For more intensive punishment, however, a higher fraction of investors can be more efficient to elevate the trust level. In addition, we reveal that appropriate increase of the punishment intensity can enlarge the attraction domain of the coexistence state.
Online markets and trust
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Markets may shape trust and trustworthiness. In this paper, we first report results from a one-shot trust game conducted in a lab-in-the-field experiment with villagers in a rural county in northern China. Experimental results suggest that the experience as online market sellers improves individuals’ level of trustworthiness. To provide more rigorous causal evidence and insights on the underlying mechanisms, we then conducted a laboratory experiment, in which subjects played an infinitely repeated market game with asymmetric information; both before and after the market game, subjects made choices in a one-shot trust game. We do not find that the ex-post choices in the trust game differ between those playing the market game and those conducting a real-effort task instead, except that when the market game does not have a reputation system, buyers become less trustworthy afterward—adding a voluntary reputation system similar to the real-world online rating system help mitigate such a detrimental effect.
The effect of online reputation systems on intergroup inequality
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Citation Excerpt :
Because of the high risk involved with online peer-to-peer transactions, reputation systems are crucial for interpersonal trust in the platform economy. The positive effect of a good reputation on trust is well established in the literature (Boero, Bravo, Castellani, & Squazzoni, 2009; Bolton, Katok, & Ockenfels, 2004; Charness, Du, & Yang, 2011; Duffy, Xie, & Lee, 2013; Fehrler & Przepiorka, 2013; Jiao, Przepiorka, & Buskens, 2021). Obtaining a first review has been found to be of utmost importance for future trust.
Recent studies state that online reputation systems may decrease or even eliminate intergroup inequality. These studies base their conclusion on the finding that the presence of reputation information may decrease platform users’ reliance on demographic information. However, these findings tell only part of the story of the relation between reputation systems and intergroup inequality: they overlook the problem that reputation systems help those who obtained at least one review but may negatively affect those individuals who have not participated in interactions before. This study is the first to take the endogeneity of the reputation building process into account by providing a direct test of differences in inequality between individuals of different nationality between a situation with and without a reputation system. Using a preregistered online experiment, I show that inequality between American and Indian individuals is not lower when there is a reputation system than when there is no reputation system. Moreover, emergent inequality in initial rounds affects inequality in later rounds. This implies that platforms that wish to create equal opportunities for users with different backgrounds should not only try to make their reputation system more effective, but also to reduce initial differences between individuals with different backgrounds.
Managing expectations: How selective information affects cooperation and punishment in social dilemma games
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Information has a long history of being used with the intention to influence people's behavior, particularly in situations where people are likely to condition their own behavior on what they expect most others to do. We experimentally study how selective (favorable or unfavorable) information about past cooperativeness of unrelated groups affects cooperation in problems of collective action. We find cooperation to crucially depend on pre-play information, coinciding with a change in initial beliefs. In addition, we find unfavorable information to substantially reduce the effectiveness of peer punishment. This prevents groups that start off on the wrong foot from recovering over time. The impact of information does not rely on information being public or private. Yet it critically relies on the information being surprising. In a cooperative environment, it is unfavorable information that matters; in an uncooperative environment, it is favorable information.

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Trust and trustworthiness reputations in an investment game

Abstract

Econ. Letters

Games Econ. Behav.

J. Public Econ.

J. Econ. Behav. Organ.

Games Econ. Behav.

J. Econ. Psych.

J. Exper. Social Psych.

Europ. Econ. Rev.

The Biology of Moral Systems

Evolution of social behavior: Individual and group selection

J. Econ. Perspect.

Repetition and reputation: Implications for trust and trustworthiness when institutions change

Amer. Econ. Rev. Papers Proceed.

How effective are electronic reputation mechanisms? An experimental investigation

Manage. Sci.

Hot vs. cold: Sequential responses in simple experimental games

Exper. Econ.

Do labour market conditions affect gift exchange? Some experimental evidence

Econ. J.

Understanding social preferences with simple tests

Quart. J. Econ.

Foundations of Social Theory

Direct vs. indirect reciprocity: An experiment

Homo Oeconomicus

Inequality aversion, efficiency, and maximin preferences in simple distribution experiments

Amer. Econ. Rev.

The false consensus effect disappears if representative information and monetary incentives are given

Exper. Econ.

Donʼt lose your reputation

Nature