Trust game

Definition

The trust game is a fundamental experimental economics model used to study trust and reciprocity between individuals. In this game, one player, known as the 'trustor,' must decide how much of their resources to send to another player, the 'trustee,' who can then choose to return some of the resources or keep them. This setup allows researchers to observe how trust influences decision-making and behavior in economic interactions, highlighting the role of social preferences and behavioral biases.

5 Must Know Facts For Your Next Test

1. The trust game involves two players: a trustor who decides how much money to send to the trustee, and the trustee who decides how much to return.
2. Typically, the amount sent by the trustor is tripled before reaching the trustee, creating a potential for higher returns based on trust.
3. Results from trust game experiments often show that trustors tend to send a significant portion of their endowment, indicating a level of trust despite potential risks.
4. Trust games are often used to study behavioral biases as players' decisions may not always align with traditional economic predictions based on self-interest.
5. The outcomes of trust games can vary widely across different cultures and contexts, revealing insights into social norms and values regarding trust.

Review Questions

• How does the design of the trust game help in understanding the concept of trust between individuals?
  • The design of the trust game allows researchers to create a controlled environment where one player must decide how much to invest in another's willingness to reciprocate. This dynamic helps highlight the motivations behind trusting behaviors and reveals how social norms influence decision-making. By observing the choices made by both players, insights into the nature of trust and reciprocity can be gathered, providing valuable data on human interactions in economic contexts.
• Discuss how behavioral biases may affect players' decisions in the trust game and what implications this might have for economic theories.
  • Behavioral biases such as overconfidence or loss aversion can significantly influence decisions made in the trust game. For instance, if trustors are overly optimistic about their trustee's intentions, they may send more resources than rational models predict. This discrepancy suggests that traditional economic theories, which assume rational behavior, may not fully account for the complexities of human behavior in real-life scenarios. Understanding these biases can lead to more nuanced models that better reflect actual decision-making processes.
• Evaluate how cultural differences can impact outcomes in the trust game and what this means for cross-cultural economic interactions.
  • Cultural differences can greatly affect outcomes in the trust game, as varying societal norms around trust and reciprocity influence how players behave. For example, cultures that emphasize community and collective well-being may see higher levels of trust compared to those that prioritize individualism. These variations highlight the importance of understanding cultural contexts in economic interactions, suggesting that strategies for building trust in business or negotiation settings must be tailored to align with specific cultural values. This awareness can enhance cooperation across different cultures in global economic exchanges.

Related terms

Reciprocity: The social norm of responding to a positive action with another positive action, rewarding kind actions.

Behavioral Biases: Systematic patterns of deviation from norm or rationality in judgment, influencing decision-making processes.

Ultimatum Game: An economic game where one player proposes how to divide a sum of money with another player, who can accept or reject the offer, illustrating fairness and negotiation.