TRUST AND FINANCIAL TRADES: LESSONS FROM AN INVESTMENT GAME WHERE RECIPROCATORS CAN HIDE BEHIND PROBABILITIES

Radu Vranceanu, Angela Sutan, Delphine Dubart

Journal of Socio-Economics, Volume 41, Issue 1, January 2012, pp. 72-78

In this paper we show that if a very small, exogenously given probability of terminating the exchange is introduced in an elementary investment game, reciprocators play more often the defection strategy. Everything happens as if they "hide behind probabilities" in order to break the trust relationship. Investors do no not seem able to internalize the reciprocators’ change in behavior. This could explain why trades involving an exogenous risk of value destruction, such as financial transactions, provide an unfavorable environment for trust-building.