An Experimental Analysis of Cooperation and Productivity in the Trust Game Old Title: Sorry No CODs...
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An Experimental Analysis of Cooperation and Productivity in the Trust Game Old Title: Sorry No CODs Cary Deck University of Arkansas Thanks to the Center for Retailing Excellence
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Transcript of An Experimental Analysis of Cooperation and Productivity in the Trust Game Old Title: Sorry No CODs...
An Experimental Analysis of Cooperation and Productivity in the
Trust Game
Old Title: Sorry No CODs
Cary DeckUniversity of Arkansas
Thanks to the Center for Retailing Excellence
the Trust Game
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•Described as a Model of Exchange by Coricelli, McCabe, and Smith (2000)
•First party can attempt trade or not and the second party can complete the trade or defect.
•Data from Cox and Deck (2005) Double Blind Experiments
Modeling Trade
• The gains from trade occur when the seller transfers the product to the buyer.
• Buyer is simply transferring money to seller.
• The trust game has the seller moving first, but in many situations it is the buyers that mover first.
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Productive TrustModeling Trade - Seller First
• If the parties do not trade, both keep their endowments S and B.
• The value to the buyer is v and the cost to the seller is c.
• The market price is p.
• For the Trust game: endowments B= S= 10, v= 30, c= 10 and p= 15.
No Trade
Trade
Initiate
Defect
B
S
v
c
B
S
pv
cp
B
S
B
SNo Trade
Trade
Initiate
Defect
B
S
v
c
B
S
pv
cp
B
S
BB
SS
Unproductive TrustModeling Trade - Buyer First
No Trade
Trade
Initiate
Defect
S
B
p
p
S
B
cp
pv
S
B
S
BNo Trade
Trade
Initiate
Defect
S
B
p
p
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B
cp
pv
S
B
SS
BB• Gains from trade
only realized if trade successful.
• Second mover seller gives up c to give the buyer v. (costs $1 to
give $v/c > $1)
Does Order Matter
• Gains from trade realized if trade is attempted by first mover seller, but only if trade is successful when buyer moves first.
• Decision of second mover changes– Unproductive second mover gives up p to give
the other p. (costs $1 to give $p/p = $1) – Productive second mover gives up c to give
the other v. (costs $1 to give $v/c > $1)
• Andreoni and Vestrlund (2001) suggest greater cooperation in nonproductive trust game (buyer first game).
Experimental Design
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Trust Game Reversed Trust Game
Experimental Design
• Parameters B=10, S=5, v=15, c=5 and p=10.– Value and cost are half of standard trust
game level (as in some of Cox and Deck 2005)
– asymmetric endowments both risk a $0 payoff from trust.
– price divides surplus evenly. • Double blind payoff procedures.• Subjects paid $5 show-up fee before 25 minute
one-shot experiment began. • Between 8 and 14 subjects in each session and
at least one pair played each game.• Neutral language.
Experimental Results
Productive Trust Unproductive Trust
Seller Game Buyer Game
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8p-value = 0.0783
p-value = 0.0028
Why don’t Buyers Trust?
• Unproductive Trust Game and Trust Game differ only in second mover payoffs.– first mover wants to “win.”– first mover fears second
mover won’t be willing to “lose.”
• Asymmetric Endowment Trust Game is a combination of – Unproductive Trust Game
(exit payoff)– Trust Game (second
mover decision)
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Asymmetric Endowments Trust Game
Experimental Results
Trust Game Asymmetric Unproductive
Endowments Trust Game
Trust Game (Buyer Game)
p-value = 0.8378
p-value = 0.6783
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p-value = 0.0580
p-value = 0.0662
Conclusions• Productivity of Trust matters
– Sellers are more likely to complete a trade.(Sorry No CODs)
– People are more generous when the cost of giving is lower. (confirms Andreoni and Vesterlund 2001 with double blind payoffs)
– Trust game may not be appropriate model of trade.
• Unproductive first movers are less willing to trust because they wrongly anticipate that productive second movers are not willing to take smaller relative payoff.
• Behavior in productive trust game is similar to trust game (robustness of Cox and Deck double blind payoff results).
