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Trust, Communication and Contracts: An Experiment

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  • Avner Ben-Ner
  • Louis Putterman

Abstract

In the one-shot trust or investment game without opportunities for reputation formation or contracting, economic theory predicts no trusting because there is no incentive for trustworthiness. Under these conditions, theory predicts (a) no effect of pre-play communication, and (b) universal preference for moderate cost binding contracts over interacting without contracts. We introduce the opportunities to engage in pre-play communication and to enter binding or non-binding contracts, and find (a) communication increases trusting and trustworthiness, (b) contracts are largely unnecessary for trusting and trustworthy behaviors and are eschewed by many players, and (c) more trusting leads to higher earnings, and (d) both trustors and trustees favor “fair and efficient” proposals over the more unequal proposals predicted by theory.

Suggested Citation

  • Avner Ben-Ner & Louis Putterman, "undated". "Trust, Communication and Contracts: An Experiment," Working Papers 0206, Human Resources and Labor Studies, University of Minnesota (Twin Cities Campus).
    • Handle: RePEc:hrr:papers:0206
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    References listed on IDEAS

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    More about this item

    Keywords

    trust game; trust; trustworthiness; reciprocity; commitment; communication. Comparative analysis of agency problems; Production of public goods;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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