Whatever you say, your reputation precedes you: observation and cheap talk in the trust game

Juergen Bracht and Nick Feltovich

Behavior in trust games has been linked to general notions of trust and trustworthiness, important components of social capital. In the equilibrium of a trust game, the investor does not invest, foreseeing that the allocator would keep all of the returns. We use a human-subjects experiment to test the effects of changes to the game designed to increase cooperation and efficiency. We add a pre-play stage in which the investor receives a cheap-talk message from the allocator, observes the allocator's previous decision, or both. None of these changes alter the game's theoretical predictions. We find that allowing observation results in substantially higher cooperation and efficiency, but cheap talk has little effect.

Bracht, Juergen and Nick Feltovich (2009), "Whatever you say, your reputation precedes you: observation and cheap talk in the trust game", Journal of Public Economics 93 (9-10), pp. 1036-1044. DOI: 10.1016/j.jpubeco.2009.06.004.