Trust and trustworthiness after negative random shocks

Abstract

We experimentally investigate the effect of a negative endowment shock that can cause inequality in a trust game. Our goal is to assess whether different causes of inequality have different effects on trust and trustworthiness. In our trust game, we vary whether there is inequality (in favor of the second mover) or not and whether the inequality results from a random negative shock (i.e., the outcome of a die roll) or exists from the outset. Our findings suggest that inequality causes first-movers to send more of their endowment and second-movers to return more. However, we do not find support for the hypothesis that the cause of the inequality matters. Behavior after the occurrence of a random shock is not significantly different from the behavior in treatments where the inequality exists from the outset. Our results highlight the need to be cautious when interpreting the effects on trust and trustworthiness of negative random shocks in the field (such as natural disasters). Our results suggest that these effects are primarily driven by the inequality caused by the shock and not by any of the additional characteristics of the shock, like saliency or uncertainty.