Embedded Trust : An Experiment on Learning and Control Effects

The paper discusses a laboratory experiment in which pairs of trustors play finitely repeated Trust Games with the same trustee. We study trustfulness of the trustors as well as trustworthiness of the trustee. We distinguish between learning and control effects on trustfulness and trustworthiness. Learning effects are related to an actor’s information on past behavior of the partner. Control effects are related to opportunities for sanctioning a trustee in future interactions. The experiment includes two conditions that represent different types of “embeddedness” of Trust Games. In one condition, each trustor only knows what happens in her own games with the trustee. In the other condition, each trustor also knows what happens in the games of another trustor with the trustee. Thus, with respect to trustfulness of the trustor, the design allows for disentangling learning effects from own experience of the trustor with the trustee and learning effects through third-party information, i.e., information on experiences of the other trustor with the trustee. Also, the design allows for disentangling control effects on trustfulness and on trustworthiness through own sanction opportunities of the trustor and through opportunities for third-party sanctions, i.e., sanctions implemented by the other trustor