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How to Identify Trust and Reciprocity

This module is based on the article "How to Identify Trust and Reciprocity," by James C. Cox in Games and Economic Behavior, 46, 2004, pp. 260-281. The triadic (three-games) classroom exercise separates the motives of trust, reciprocity, and other-regarding preferences in an investment game.

Motivation

  • Single-game trust and reciprocity experiments 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 or reciprocity and transfers resulting from other-regarding preferences.

Learning Objectives

  • to confront the positive amounts passed during the experiment with the prediction of self-regarding preferences model
  • to introduce other-regarding preferences, trust, reciprocity
  • to separate the motives of positive transfers of money
  • to illustrate the effects of social norms

Class Period Plan

  • Motivating the students for the exercise
  • Three-games experiment - investment game and two dictator controls
  • Presentation of data and interpretation of results
  • Discussion

Triadic Experiment

  • Treatment A: investment game
  • Treatment B: investment game dictator control for player 1
  • Treatment C: investment game dictator control for player 2

Available Configurations

  • Setup and Procedures for hand-run experiment
  • Configuration for web-based experiment

Instructions

Instructions (or the link to instructions) to come here.

Presentation of Data and Interpreting the Results

  • Draw the budget sets for Player 1 and Player 2.
  • Compare the actual amounts send by players 1 and 2 with the Nash prediction for self-regarding preferences model.
  • Explain the possible motives behind transfers of both players.
  • Explain the tables and graphs of amounts sent in all three games.
  • Separate the motives of trust from other-regarding preferences for Player 1 and positive reciprocity from other-regarding preferences for Player 2.
  • Show individual payoffs.

Discussion

Motivating student questions

  • Ask for the reasons why students sent positive amounts or zero.
  • Discuss the importance of Pareto-improvement for pairs of students.
  • Facilitate the discussion on various kinds of other-regarding preferences (altruism, inequality aversion, guilt aversion, etc.)
  • Discuss the importance of intentions, emotions, and affect when making decisions.

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