Social Distance in a Virtual World Experiment

We conduct a quasi-field experiment in a virtual world environment to investigate the impact of social distance on economic choices. We design trust games with partner selection, in which the proposer chooses between a familiar responder and a stranger with a higher multiplier. When choosing between the two responders, the proposer faces tradeoffs between economic opportunities and social distance. Comparing participants' behaviors to those in a standalone trust game, we find that in the virtual world experiment the proposers are more likely to select the socially closer responders despite the lower rate of investment returns, and the latter reciprocate by returning a higher proportion than the socially distant responders. Virtual communication also plays an important role on the proposers' choice and the responders' reciprocity. In contrast, social distance and virtual communication have less impact in the lab with a student sample