Distinguishing Trust from Risk: An Anatomy of the Investment Game

The role of trust in promoting economic activity and societal development has received considerable academic attention by social scientists. A popular way to measure trust at the individual level is the so-called “investment game” (Berg, Dickhaut, and McCabe, 1995). It has been widely noted, however, that risk attitudes can also affect decisions in this game, and thus in principle confound inferences about trust. We provide novel evidence, shedding light on the role of risk attitudes for trusting decisions. To the best of our knowledge, our data are the first rigorous evidence that (i) aggregate investment distributions differ significantly between trust and risk environments, and (ii) risk attitudes predict individual investment decisions in risk games but not in the corresponding trust games. Our results are convergent evidence that trust decisions are not tightly connected to a person’s risk attitudes, and they lend support to the “trust” interpretation of decisions in investment games. DOI: https://doi.org/10.1016/j.jebo.2010.01.002 Posted at the Zurich Open Repository and Archive, University of Zurich ZORA URL: https://doi.org/10.5167/uzh-43231 Accepted Version Originally published at: Houser, D; Schunk, D; Winter, J (2010). Distinguishing trust from risk: an anatomy of the investment game. Journal of Economic Behavior Organization, 74(1-2):72-81. DOI: https://doi.org/10.1016/j.jebo.2010.01.002 Distinguishing Trust from Risk: An Anatomy of the Investment Game Daniel Houser George Mason University, VA, USA dhouser@gmu.edu Daniel Schunk University of Zurich, Switzerland dschunk@iew.uzh.ch Joachim Winter University of Munich, Germany winter@lmu.de Abstract: The role of trust in promoting economic activity and societal development has received considerable academic attention by social scientists. A popular way to measure trust at the individual level is the so-called “investment game” (Berg, Dickhaut, and McCabe, 1995). It has been widely noted, however, that risk attitudes can also affect decisions in this game, and thus in principle confound inferences about trust. We provide novel evidence, shedding light on the role of risk attitudes for trusting decisions. To the best of our knowledge, our data are the first rigorous evidence that (i) aggregate investment distributions differ significantly between trust and risk environments, and (ii) risk attitudes predict individual investment decisions in risk games but not in the corresponding trust games. Our results are convergent evidence that trust decisions are not tightly connected to a person’s risk attitudes, and they lend support to the “trust” interpretation of decisions in investment games. Acknowledgements: The authors are grateful to seminar participants at the University of Mannheim and the University of Zurich, as well as to participants of the 2007 Annual Conference of the German Economic Association (VfS) in Munich, the 2008 International Meeting on Experimental and Behavioral Economics (IMEBE) in Alicante, and the 2008 conference of the European Economic Association in Milano. This paper further benefited from comments by Charles Bellemare, Yan Chen, John Dickhaut, Ernst Fehr, Urs Fischbacher, Glenn Harrison, Benedikt Herrmann, Sabine Kroeger, Kevin McCabe, Mary Rigdon, and Klaus Schmidt. An earlier version was circulated under the title “Trust Games Measure Trust”. The role of trust in promoting economic activity and societal development has received considerable academic attention by social scientists. A popular way to measure trust at the individual level is the so-called “investment game” (Berg, Dickhaut, and McCabe, 1995). It has been widely noted, however, that risk attitudes can also affect decisions in this game, and thus in principle confound inferences about trust. We provide novel evidence, shedding light on the role of risk attitudes for trusting decisions. To the best of our knowledge, our data are the first rigorous evidence that (i) aggregate investment distributions differ significantly between trust and risk environments, and (ii) risk attitudes predict individual investment decisions in risk games but not in the corresponding trust games. Our results are convergent evidence that trust decisions are not tightly connected to a person’s risk attitudes, and they lend support to the “trust” interpretation of decisions in investment games. Acknowledgements: The authors are grateful to seminar participants at the University of Mannheim and the University of Zurich, as well as to participants of the 2007 Annual Conference of the German Economic Association (VfS) in Munich, the 2008 International Meeting on Experimental and Behavioral Economics (IMEBE) in Alicante, and the 2008 conference of the European Economic Association in Milano. This paper further benefited from comments by Charles Bellemare, Yan Chen, John Dickhaut, Ernst Fehr, Urs Fischbacher, Glenn Harrison, Benedikt Herrmann, Sabine Kroeger, Kevin McCabe, Mary Rigdon, and Klaus Schmidt. An earlier version was circulated under the title “Trust Games Measure Trust”.