Belief-dependent preferences and reputation: Experimental analysis of a repeated trust game

Abstract

We study in a theoretical and experimental setting the interaction between belief-dependent preferences and reputation building in a finitely repeated trust game. We focus mainly on the effect of guilt aversion. In a simple two-type model, we analyze the effect of reputation building in the presence of guilt-averse trustees and derive behavioral predictions. We test these predictions in a laboratory experiment where we elicit information on trustees’ belief-dependent preferences and disclose it to the paired trustor before the repeated game.