An Experimental Investigation of Trust And Reciprocity In Double-Shot Investment Games

Abstract

When there are multiple interactions between two individuals, trust and reciprocal behaviour are guided by the plausible cost of risking future collaborations. However, in case of single transaction, there is no risk of retaliation. We examine this through two investment experiments - the original Berg et al. (1995) investment game and a modified version which emulates a protocol to capture trust and reciprocal behaviour of paired subjects through double interactions. Double interaction subjects display higher level of trust and reciprocity than single interaction subjects. Women are more strategic than men and are more trusting and trustworthy. Reciprocity is also identified as a determinant of trust. Another important contribution of the study is importance of recent behaviour in guiding final reciprocal action. This is the first paper where double-shot interaction has been introduced to study trust and reciprocal behaviour in an experimental setting.