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Trust and Financial Trades: Lessons from an Investment Game Where Reciprocators Can Hide Behind Probabilities

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In this paper we show that if a very small, exogenously given probability of terminating the exchange is introduced in an elementary investment game, reciprocators play more often the defection strategy. Everything happens as if they "hide behind probabilities" in order to break the trust relationship. Investors do no not seem able to internalize the reciprocators' change in behavior. This could explain why trades involving an exogenous risk of value destruction, such as financial transactions, provide an unfavorable environment for trust-building

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  • Vranceanu, Radu & Sutan, Angela & Dubart, Delphine, 2010. "Trust and Financial Trades: Lessons from an Investment Game Where Reciprocators Can Hide Behind Probabilities," ESSEC Working Papers DR 10007, ESSEC Research Center, ESSEC Business School.
    • Handle: RePEc:ebg:essewp:dr-10007
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    1. repec:cup:judgdm:v:10:y:2015:i:5:p:442-455 is not listed on IDEAS
    2. Khalmetski, Kiryl & Rockenbach, Bettina & Werner, Peter, 2017. "Evasive lying in strategic communication," Journal of Public Economics, Elsevier, vol. 156(C), pages 59-72.
    3. Christophe Heintz & Jérémy Celse & Francesca Giardini & Sylvain Max, 2015. "Facing expectations: Those that we prefer to fulfil and those that we disregard," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 10(5), pages 442-455, September.
    4. Besancenot, Damien & Vranceanu, Radu, 2011. "Banks' risk race: A signaling explanation," International Review of Economics & Finance, Elsevier, vol. 20(4), pages 784-791, October.
    5. Sutan, Angela & Vranceanu, Radu, 2016. "Lying about delegation," Journal of Economic Behavior & Organization, Elsevier, vol. 121(C), pages 29-40.
    6. Fooken, Jonas, 2023. "Trusting when risk and ambiguity create opportunities for exploitation," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 103(C).
    7. Tagat, Anirudh & Kapoor, Hansika, 2017. "The trust broker game: A three-player trust game with probabilistic returns and information asymmetry," Economics Discussion Papers 2017-33, Kiel Institute for the World Economy (IfW Kiel).

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    More about this item

    Keywords

    Experimental Economics; Financial Transactions; Investment Game; Objective Risk; Trust;
    All these keywords.

    JEL classification:

    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G00 - Financial Economics - - General - - - General

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