Abstract. Experimentalists frequently claim that human subjects in the laboratory violate game-theoretic predictions. It is here argued that this claim is usually premature. The paper elaborates on this theme by way of raising some conceptual and methodological issues in connection with the very definition of a game and of players ’ preferences, in particular with respect to potential context dependence, interpersonal preference dependence, backward induction and incomplete information.

This is an outgrowth of an invited paper presented at the American Economic Association Meetings,

The existence of a beauty premium in the labor market and the malefemale wage gap suggests that appearance can matter in the real world. We explore beauty and gender in a public goods experiment and find similar effects. We find a beauty premium, even though beautiful people contribute, on average, no more or less than others. The beauty premium, however, disappears when we provide information on individual contributions, and becomes a beauty penalty. Players seem to expect beautiful people to be more cooperative. Relative to these expectations, they appear more selfish, which in turn results in less cooperation by others. These appear to be clear examples of stereotyping. We also find a substantial benefit tobeing male, especially with information. This is primarily due to men being better “leaders.” Men tend to make large contributions, and people follow their example and give more in later rounds.

This paper builds a theory of trust based on informal contract enforcement in social networks. In our model, network connections between individuals can be used as social collateral to secure informal borrowing. We de…ne network-based trust as the highest amount one agent can borrow from another agent, and derive a reduced-form expression for this quantity which we then use in three applications. (1) We predict that dense networks generate bonding social capital that allows transacting valuable assets, while loose networks create bridging social capital that improves access to cheap favors like information. (2) For job recommendation networks, we show that strong ties between employers and trusted recommenders reduce asymmetric information about the quality of job candidates. (3) Using data from Peru, we show empirically that network-based trust predicts informal borrowing, and we structurally estimate and test our model.

While interest in social determinants of individual behavior has led to a rich theoretical literature and many efforts to measure these influences, a mature “social econometrics ” has yet to emerge. This chapter provides a critical overview of the identification of social interactions. We consider linear and discrete choice models as well as social networks structures. We also consider experimental and quasi-experimental methods. In addition to describing the state of the identification literature, we indicate areas where additional research is especially needed and suggest some directions that appear to be especially promising.

This paper builds a theory of informal contract enforcement in social networks. In our model, connections between individuals generate social collateral that can be used to control moral hazard when agents interact in a borrowing relationship. We define trust between two agents as the amount that one can borrow from the other, and derive a simple reduced form expression for trust as a function of the social network. We show that trust is higher in more connected and more homogenous societies, and relate our trust measure to commonly used network statistics. The model implies that dense networks generate greater welfare when arrangements typically require high trust, and loose networks create more welfare otherwise. Using data on social networks and behavior in dictator games, we document evidence consistent with the quantitative predictions of the model.

Abstract: This paper investigates whether expectations of trustworthiness and resulting acts of trust accord with an objective model of trustworthiness or are biased. Combining experimental and survey data, I find that Ghanaian workers appropriately take account of the religiousness of trustees, but expect those with more children to be less as opposed to more trustworthy, and females to be less and the associationally active to be more trustworthy when they are neither. Trustors do not account for the negative impact on trustworthiness of various recent negative experiences and the positive impact of involvement in voluntary work, full time work, and indigenousness. Keywords: trust; trustworthiness; expectations; field experiment; Ghana.

We analyze experimental evidence on whether untrained subjects can predict how trustworthy an individual is. Two players on a TV show play a high stakes prisoner’s dilemma with pre-play communication. Our subjects report probabilistic beliefs that each player cooperates, before and after communication. Subjects correctly predict that women, and players who voluntarily promise that they will cooperate, are more likely to cooperate. They are also able to distinguish truth from lies when a player is asked about his or her intentions by the host. In consequence, and in contrast with the psychology literature, our naive subjects are able to distinguish defectors from cooperators, with the latter inducing beliefs that are 7 percentage points higher. We also study Bayesian updating in the natural and complex context, and find mean reversion in beliefs, and reject the martingale property.

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In a three player dynamic public goods experiment, social output today determines production possibilities tomorrow. In each period, players choose to sabotage, to co-operate, or to play best response. Sabotage harms social output and growth. Mutual co-operation maximises both. The property rights to social output are distributed unequally. Extent and skew of inequality are varied. Empirical studies indicate a negative impact of inequality on trust and growth. We observe equilibrium play in most cases. There is also substantial cooperation, but little sabotage. Our exogenous variations of inequality are neutral to growth, neither negatively correlated to co-operation, nor positively correlated to sabotage.