Sequential versus simultaneous trust

Till Gross, Maroš Servátka, Radovan Vadovič

Research output: Contribution to journalArticlepeer-review

Abstract

We examine theoretically and experimentally the implications of trust arising under sequential and simultaneous designs, where one player makes an investment choice, and another player decides whether to share the investment gains. We show analytically that in some cases the sequential design may be outperformed by the simultaneous design. In an experiment we find that the investment levels and sharing rates are higher in the sequential design, but there are no corresponding differences in beliefs. We conjecture that this happens because in the sequential design substantially more trust is necessary to induce cooperation. Our data strongly support this conjecture.
Original languageEnglish
Pages (from-to)446-472
Number of pages27
JournalJournal of Institutional and Theoretical Economics
Volume176
Issue number3
Early online date23 Mar 2020
DOIs
Publication statusPublished - Sep 2020

Keywords

  • trust
  • investment
  • efficiency
  • institutional design

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