Trusting when risk and ambiguity create opportunities for exploitation

This article studies the effect of uncertainty on reciprocity and trust using an experimental trust game in which the trustor's transfer is lost with some probability. Only the trustee will observe whether the transfer is lost or not. As a result, when not receiving anything back, the trustor cannot differentiate between a lost transfer and a selfish trustee. The results show that self-serving decisions of trustees increase with uncertainty. This increase is not driven by trustees who use their informational advantage and return zero. Instead, trustees continue to return positive amounts, but share less under uncertainty. Trustors also reduce transfers with increasing uncertainty. The data supports that risk attitudes, less sharing with trustees and the anticipation of trustee decisions contribute to this finding on trustor decisions.