How to Identify Trust and Reciprocity
James Cox in "How to Identify Trust and Reciprocity," Games and Economic Behavior, 46, 2004, pp. 260-281, introduces a triadic (three-games) design for conducting trust and reciprocity experiments. As Cox notes, most of game theory assumes that only payoffs matter and that relative or absolute material payoffs and intentions of other players do not play a role. A large body of experimental literature has produced results inconsistent with predictions of self-regarding preferences model. The triadic design implemented in the study discriminates between actions motivated by preferences over the distribution of material outcomes and actions motivated by attributions of the intentions of others.
Triadic Experimental Design
The large literature on single-game trust and reciprocity experiments with one-shot games is based on the assumption that a subject's utility payoff in a game is the same as his/her monetary payoff. Experiments with the triadic design can discriminate between transfers resulting from trust and transfers resulting from other-regarding preferences for player 1 and between transfers resulting from positive reciprocity and transfers resulting from other-regarding preferences for player 2.
The experiment sessions were run manually with a double blind payoff procedure. Subject responses were identified only by letters that were private information of the decision makers. Monetary payoffs were collected in private from sealed envelopes contained in lettered mailboxes. This way no one, neither the experimenters nor the other subjects nor anyone else would ever be able to trace the subjects' choices to their identities
Discriminating Between Other-Regarding Preferences and Trust or Reciprocity.
Other-regarding preferences are preferences over the absolute and relative amount of another individual's material payoffs, in addition to one's own material payoffs.
If player 1 decides to send a positive amount of money, it does not necessarily mean that she exhibits trusting behavior, unless it is known that she has self-regarding or inequality-averse preferences. Alternative explanation of sending a positive amount to the second mover are altruistic preferences. In such case, player 1 might prefer to give some money regardless of how much, if any, player 2 might return. Notice that in treatment B, player 2 cannot return anything to player 1. Consequently, player 1's transfer cannot be motivated by trust. The conclusions abouth whether players' 1 choices in treatment A investment game are partially motivated by trust are based on the difference between the amounts sent by players 1 to players 2 in treatments A and B.
There are two possibilities why player 2 may return part of the tripled money to the paired player 1. One explanation are the preferences over payoff pairs conditional on a social norm for reciprocating the intentionally generous behavior of the first mover. By returning some or all money, player 2 repays a generous action with a generous response. The other explanation for sending back a positive amount to player 1 are unconditional altruistic or inequality-averse other-regarding preferences. In treatment C players 1 cannot send anything and consequently, players 2 cannot be motivated by a positive reciprocity. Thus, the conclusions about whether players' 2 choices in treatment A investment game are partially motivated by positive reciprocity are based on the difference between the amounts returned by players 2 to players 1 in treatments A and C.
Subjects' Behavior in the Experiment
In Cox's investment game 6 out of 32 players 1 sent zero, 7 sent exactly half of their endowments, 2 sent amounts that were greater than $5 and less than $10, and 13 players 1 sent all $10 of their endowments. In the Investment Game Dictator Control 1, 19 out of 30 players 1 (i.e. 63%) sent positive amounts of money and only 11 sent zero; thus there is substantial evidence of altruistic other-regarding preferences in these data. Further statistical analysis of the data that compares the amounts sent by players 1 in IGDC1 reveals that players 1 in the experiment also exhibited trust.
Figure 1. Behavior of Subjects in The Investment Game (Treatment A)
Figure 2. Behavior of Subjects in The Investment Game Dictator Control 1 (Treatment B)
In the Investment Game Dictator Control 2, 13 out of 32 players 2 returned positive amounts of money to paired first movers, which provides substantial evidence of other-regarding preferences also among players 2. The statistical analysis comparing amounts returned by the players 2 in the Investment Game and IGDC2 reveals that players 2 in the experiment exhibit positive reciprocity.
Figure 3. Behavior of Subjects in The Investment Game Dictator Control 2 (Treatment C)