This paper reports an experiment evaluating the effect of gift giving on building trust. We have nested our explorations in the standard version of the investment game. Our gift treatment includes a dictator stage in which the trustee decides whether to give a gift to the trustor before both of them proceed to play the investment game. We observe that in such case the majority of trustees offer their endowment to trustors. Consequently, receiving a gift significantly increases the amounts sent by trustors when controlling for the differences in payoffs created by it. Trustees are, however, not better off by giving a gift as the increase in the amount sent by trustors is not large enough to offset the trustees’ loss associated with the cost of giving a gift.
Dasgupta, P. Economic progress and the idea of social capital. In Social Capital: A Multifaceted Perspective; Dasgupta, P., Serageldin, I., Eds.; World Bank: Washington, DC, USA, 2000.
If there exists a possibility for reputation building due to repeated interaction [15,16] and/or if the contract between the transacting parties is verifiable and enforceable [17], the problem whether to trust or not is easily mitigated because the parties face severe punishments on the off-equilibrium path. A competition among trustees is observed to have even stronger effects than reputation building [18], although [19] show in a somewhat different setting that observing past behavior also has a powerful impact on relationships.
Huck, S.; Ruchala, G.; Tyran, J.-R. Competition Fosters Trust. University of Copenhagen working paper; University of Copenhagen: Copenhagen, Denmark, 2006.
Bracht, J.; Feltovich, N. Whatever you say, your reputation precedes you: Observation and cheap talk in the trust game. J. Pub. Econ. 2009, 93, 1036–1044.
See the seminal papers on the importance of fairness in economic decision making by [23–25]. The experimental literature dealing with fairness and other-regarding behavior is surveyed in [26] and more recently in [27] and [28]. [29–31] provide a nice account of the literature on fairness ideals and distributive justice.
Fehr, E.; Schmidt, K. The Economics of fairness, reciprocity and altruism—Experimental evidence and new theories. In Handbook of the Economics of Giving, Altruism and Reciprocity; Kolm, S.-C., Ythier, J.M., Eds.; Elsevier: London, UK, 2006; Volume 1.
Cooper, D.; Kagel, J. Other regarding preferences: A selective survey of experimental results. In The Handbook of Experimental Economics; Kagel, J.H., Roth, A., Eds.; Princeton University Press: Princeton, NJ, USA, 2009; Volume 2.
Fehr, E.; Goette, L.; Zehnder, C. The behavioral economics of the labor market: Central findings and their policy implications. Annu. Rev. Econ. 2009, 1, 355–384.
Gneezy, U.; List, J.A. Putting behavioral economics to work: Testing for gift exchange in labor markets using field experiments. Econometrica 2006, 74, 1365–1384.
Thaler, R.H.; Johnson, E.J. Gambling with the house money and trying to break even: The effects of prior outcomes on risky choice. Manag. Sci. 1990, 36, 643–660.
A nice account of anthropology, sociology, and social psychology literature on gift giving can be found in [51] who also presents a psychological game-theoretic model of gift giving that incorporates emotions. See also the study of [52] on cost perception and the preference to give or receive a gift, [53] on the use of gifts for creating social ties, [54] on how worthless but costly gifts can facilitate courtship, [55] for a model explaining how gifts can enhance welfare, and [56] for a study analyzing the role of gifts in repeated interactions.
Robben, H.S.J.; Verhallen, T.M.M. Behavioral costs as determinants of cost perception and preference formation for gifts to receive and gifts to give. J. Econ. Psychol. 1994, 15, 333–350.
Cox, J.C. Implications of Game Triads for Observations of Trust and Reciprocity. University of Arizona discussion paper; University of Arizona: Tucson, AZ, USA, 2000.
Bourdieu, P. Forms of capital. In Handbook of Theory and Research for the Sociology of Education; Richards, J.C., Ed.; Greenwood Press: New York, NY, USA, 1983.
[66] considered three repeated interaction conditions: incremental condition in which first movers had to increment their amount sent from round to round, decremental condition with the opposite restriction, and an unrestricted condition. Interestingly, they do not find significant differences in the amounts sent by the first movers across these three conditions.
Andreoni, J. Trust, Reciprocity, and Contract Enforcement: Experiments on Satisfaction Guaranteed. University of California San Diego working paper; University of California: San Diego, CA, USA, 2005.
Raub, W.; Keren, G. Hostages as a commitment device. A game-theoretic model and an empirical test of some scenarios. J. Econ. Behav. Organ. 1993, 21, 43–67.
Deck, C.; Servátka, M.; Tucker, S. Do People Keep Socially Unverifiable Promises?. University of Canterbury working paper; University of Canterbury: Canterbury, New Zealand, 2011.
Bolton, G.; Katok, E.; Ockenfels, A. How effective are electronic reputation mechanisms? An experimental investigation. Manag. Sci. 2004, 50, 1587–1602.
In the existing literature, the behavior of player A and player B in an investment game is often interpreted as proxies for trusting and trustworthy behavior [17,32]. There are other possible motivations why players would send and return positive amounts, such as distributive other-regarding preferences [80–82], preferences for increasing social welfare [83], reciprocity [25,84–87] or various psychological motivations, such as guilt aversion [88,89]. One could, of course, also ask the follow up question: How does a gift affect other-regarding preferences? [90] presents an experiment that separates trust and reciprocity from other-regarding preferences in the investment game. Similarly, it is possible to design an experiment that would identify the effect of gift separately on trust and other-regarding preferences. In this paper we are primarily concerned with the size of the investment and efficiency as the measure of trust.
An alternative design would be to include a “mandatory gift” treatment where both players begin with $10, but the experimenter imposes a “gift” of $10 on the trustee. While this alternative addresses the possibility of player A′s internalizing the $20 endowments, it is also likely to introduce experimenter demand effects and possibly even create confusion among subjects. One of the referees pointed out another control that also removes the intentions in the initial gift decision. In particular, one could implement a random device that determines whether player B′s endowment is transferred to player A.
We implemented the dictator game stage decision of player B to be binary for two reasons: (i) it makes mimicking of trustworthy types simple and (ii) it makes it easy to design a treatment controlling for the amount of money possessed by the two players when making their respective decisions.
Recall that gift is a monetary transfer by which player B can put himself at a loss, but does not preclude him from appropriating a large share of the surplus created by player A′s investment.
Andreoni, J.; Bernheim, B.D. Social image and the 50–50 norm: A theoretical and experimental analysis of audience effects. Econometrica 2009, 77, 1607–1636.
As already mentioned, we make use of the Baseline and Gift treatment data that were presented in [33]. This other paper included a communication treatment where among other things we studied decision maker's interpretation of the message as an alternative for a 3rd party interpretation. The decision forms thus included a non-salient question of why player As thought they were sent a message and what did the message mean to them. In order to be consistent across treatments an analogous question was asked in the Gift treatment analyzed in the current study. By including the non-salient questions asking about motivations behind subjects' behavior our procedures differ from the standard way the investment game is run. We have checked our data against data in [90] for any effects of including these questions and found no significant differences in subjects' behavior in the respective baseline treatments.
The average earnings of player As who received a gift were equal to $16.27 while those of who did not received a gift was equal to $9.00. For a comparison, the average earnings of a player A in Baseline were $9.33.
The difference between the average amounts sent by player As who received a gift and those in Baseline is equal to $1.81. So even if this amount is tripled and would be all retained by player Bs, they would be better off monetarily by not giving the $10 gift.
