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.
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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.
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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.
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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.
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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.
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Individual subjects' behavior is presented in Figures 1 through 3 in Appendix I.
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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.
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We thank an anonymous referee for suggesting this explanation.
