Doctoral Dissertation Research: Understanding Trust through Higher-Order Beliefs

New York University, New York NY

Investigators

Abstract

This award funds a series of decision making experiments that will test a specific theory about the sources of trust in economic relationships. The coPI has contributed to recent research that uses game theory to examine whether trust is a rational decision. He has developed a theory in which a person who is deciding whether or not to trust an economic partner considers whether or not the partner cares about being considered trustworthy. The result is a new binary trust game that can be used to investigate whether and how controlled variations in participants' higher order beliefs may affect their decisions. A key innovation of the design is the introduction of a random move between the two participants' nodes which affects the interpretation of the Sender's decision to invest as a pure act of trust. Controlled lab experiments are used to test whether or not the Sender is more likely to invest when his/her decision is more easily interpretable as a sign of trust. This research contributes to our understanding of the behavioral sources of trust in economic relationships. Because trust between trading partners is key in many economic situations, understanding how to foster appropriate trust is likely to result in broader impact. These impacts will come as market designers employ the new insights to encourage individuals to make investments.