Repeated Interactions vs. Social Ties: Quantifying the Economic Value of Trust, Forgiveness, and Reputation Using a Field Experiment

The growing importance of online social networks makes it interesting to ask whether extant social capital can substitute for trust built through repeated interactions. It also provides fertile ground for researchers seeking to gain a deeper understanding of fundamental constructs of human behavior, such as trust, forgiveness, and their linkage to social ties. In both contexts, a challenge in the literature on repeated interactions and social ties is the econometric task of accounting for endogenous social ties. The reality, and possible confound, is that repeated interactions may create a context in which social ties can emerge as the outcome of a sustained social relationship. To address the challenge of endogenous social ties, we design a field experiment that uses data from the Facebook API to measure social ties that connect our subjects, and find that the level of trust and forgiveness, and the effect of forgiveness on deterring future defections, crucially depend on the presence of social ties.