Question 1

At the conclusion of their replication of the Berg et al. trust game. Ortmann et al. suggest that trust is a "primitive". By this they mean:

Accepted Answer

A)  That trust is a primitive response often seen among higher apes but has no place in modern human society. 
B)  Trust is often found among primitive small-scale societies but not in industrialized ones. 
C)  That trust seems to be a fundamental feature of human decision making and different ways of presenting the information designed to encourage strategic thinking does not get rid of trusting decisions. 
D)  That trusting and reciprocal actions are what would be suggested by self-regarding behaviour and therefore, part of the Nash equilibrium of this game. 
A)  That trust is a primitive response often seen among higher apes but has no place in modern human society. 
B)  Trust is often found among primitive small-scale societies but not in industrialized ones. 
C)  That trust seems to be a fundamental feature of human decision making and different ways of presenting the information designed to encourage strategic thinking does not get rid of trusting decisions. 
D)  That trusting and reciprocal actions are what would be suggested by self-regarding behaviour and therefore, part of the Nash equilibrium of this game. C

Question 2

The difference between a "trust" contract and an "incentive" contract is that:

Accepted Answer

A)  The former relies on external rewards and punishments to motivate performance while the latter appeals to an agent's goodwill and desire to do one's best. 
B)  The former relies on appeals to an agent's goodwill and desire to do one's best while the latter relies on external rewards and punishments to motivate performance. 
C)  The former relies on monitoring workers and imposing explicit penalties for shirking while the latter relies on external rewards and punishments to motivate performance. 
D)  The former relies on monitoring workers and imposing explicit penalties for shirking while the latter relies on appeals to an agent's desire to do the best work that he/she can. 
A)  The former relies on external rewards and punishments to motivate performance while the latter appeals to an agent's goodwill and desire to do one's best. 
B)  The former relies on appeals to an agent's goodwill and desire to do one's best while the latter relies on external rewards and punishments to motivate performance. 
C)  The former relies on monitoring workers and imposing explicit penalties for shirking while the latter relies on external rewards and punishments to motivate performance. 
D)  The former relies on monitoring workers and imposing explicit penalties for shirking while the latter relies on appeals to an agent's desire to do the best work that he/she can. B

Question 3

Assuming self-regarding preferences, in the Nash equilibrium of the Berg et al. trust game:

Accepted Answer

A)  First movers should transfer their entire endowment to the second movers and the second movers should return the entire tripled amount. 
B)  First movers should transfer their entire endowment to the second movers and the second movers should keep this entire amount. 
C)  First movers should transfer their entire endowment to the second movers and the second movers should return half of the amount received. 
D)  The second movers have no incentive to return any money; anticipating that the first movers should not send any money in the first place. Both sets of players should end the game with their initial endowments. 
A)  First movers should transfer their entire endowment to the second movers and the second movers should return the entire tripled amount. 
B)  First movers should transfer their entire endowment to the second movers and the second movers should keep this entire amount. 
C)  First movers should transfer their entire endowment to the second movers and the second movers should return half of the amount received. 
D)  The second movers have no incentive to return any money; anticipating that the first movers should not send any money in the first place. Both sets of players should end the game with their initial endowments. D

Question 4

Which of the following is not a conclusion based on the Gneezy and Rustichini study of late parental arrivals at Israeli day-care centres?

Accepted Answer

A)  A fine can be thought of as a price. 
B)  Extrinsic incentives can crowd out intrinsic motivations. 
C)  Late arrivals actually increased upon the implementation of a fine for arriving late. 
D)  The introduction of a fine lead to a sharp decline in the incidence of late arrivals. 
A)  A fine can be thought of as a price. 
B)  Extrinsic incentives can crowd out intrinsic motivations. 
C)  Late arrivals actually increased upon the implementation of a fine for arriving late. 
D)  The introduction of a fine lead to a sharp decline in the incidence of late arrivals.

Question 5

In talking about the Berg et al. trust game, Cox (2004), remarks "The source of the difficulty is that the single-game experimental designs used to generate the data in these experiments do not discriminate between actions motivated by trust or reciprocity and actions motivated by other-regarding preferences characterized by altruism or inequality aversion that is not conditional on the behaviour of others." Briefly discuss the triadic game design - using more than one game - that Cox (2004) uses in order to distinguish between trusting and other-regarding preferences. How does the approach of Ashraf et al. (2006) which uses a triple dictator game differ from that of Cox?

Accepted Answer

Cox (2004) uses a triadic game design to

Question 6

Chaudhuri and Gangadharan (2007) suggest that in the context of this game, there is a disconnect between trust and trustworthiness; those who are trustworthy are also trusting but the converse is not true: Those who are trusting are not necessarily trustworthy. What do the authors mean by this?

Accepted Answer

Chaudhuri and Gangadharan (2007) are sug

Question 7

Fehr and Rockenbach conducted a study that allowed first movers in the trust game to specify a "back transfer" for the second movers and also allowed the first movers to impose a penalty on the second movers if and when the second mover sent back less than the "back transfer" specified by the first mover. Which of the following is an accurate description of their results?

Accepted Answer

A)  On average, the second movers return nearly 75% of the desired "back-transfer" in the trust treatment (where no fine is available to the sender), as well as the treatment where the sender could have imposed the fine but chose not to do so. Second movers return 55% in the treatment where the first movers make explicit use of the penalty. 
B)  On average, the second movers return much less (around 55%) in the treatment where the sender could have imposed the fine but chose not to do so. Second movers return more (around 75%) in the treatment where the first movers make explicit use of the penalty. 
C)  On average, the second movers return nearly 75% of the desired "back-transfer" in the trust treatment (where no fine is available to the sender), but return much less (around 55%) when the first mover had the option of imposing a penalty but chose not to do so. 
D)  On average, the second movers return around 75% of the desired "back-transfer" in all three treatments: The trust treatment, where no fine is available to the sender, the incentive treatment, where the sender could have imposed the fine but chose not to do so and the incentive treatment, where the first movers make explicit use of the penalty. 
A)  On average, the second movers return nearly 75% of the desired "back-transfer" in the trust treatment (where no fine is available to the sender), as well as the treatment where the sender could have imposed the fine but chose not to do so. Second movers return 55% in the treatment where the first movers make explicit use of the penalty. 
B)  On average, the second movers return much less (around 55%) in the treatment where the sender could have imposed the fine but chose not to do so. Second movers return more (around 75%) in the treatment where the first movers make explicit use of the penalty. 
C)  On average, the second movers return nearly 75% of the desired "back-transfer" in the trust treatment (where no fine is available to the sender), but return much less (around 55%) when the first mover had the option of imposing a penalty but chose not to do so. 
D)  On average, the second movers return around 75% of the desired "back-transfer" in all three treatments: The trust treatment, where no fine is available to the sender, the incentive treatment, where the sender could have imposed the fine but chose not to do so and the incentive treatment, where the first movers make explicit use of the penalty.

Question 8

In the gift exchange game, an incentive-based contract is one where:

Accepted Answer

A)  The principal stipulates a wage for effort but also invests in a monitoring technology that can catch the agent, with some probability, if the latter shirks. 
B)  The principal stipulates a wage for effort and relies on the worker's reciprocity to fulfil the effort asked for. 
C)  The principal can perfectly monitor the agent and punish the agent in the event of shirking. 
D)  The principal and the agent rely on mutual trust and reciprocity in order to achieve an efficient outcome. 
A)  The principal stipulates a wage for effort but also invests in a monitoring technology that can catch the agent, with some probability, if the latter shirks. 
B)  The principal stipulates a wage for effort and relies on the worker's reciprocity to fulfil the effort asked for. 
C)  The principal can perfectly monitor the agent and punish the agent in the event of shirking. 
D)  The principal and the agent rely on mutual trust and reciprocity in order to achieve an efficient outcome.

Question 9

In the context of the Berg, Dickhaut and McCabe "trust" game and its findings, what does it mean to say that on average "trust does not pay"? What is one potential intervention that seems to make people more trusting and reciprocal in this game? Why did Berg et al. provide both the first move and the second mover with the same initial endowment?

Accepted Answer

In the context of the Berg, Dickhaut and

Question 10

"Intrinsic" motivation:

Accepted Answer

A)  explains why we often do good even if no one is watching or there are no external rewards. 
B)  arises from external rewards and punishment designed to motivate better performance. 
C)  is never a good way to motivate better performance. 
D)  relies on the explicit use of carrots and sticks in order to elicit better performance. 
A)  explains why we often do good even if no one is watching or there are no external rewards. 
B)  arises from external rewards and punishment designed to motivate better performance. 
C)  is never a good way to motivate better performance. 
D)  relies on the explicit use of carrots and sticks in order to elicit better performance.

Question 11

In the Berg et al. trust game, denote the amount sent by the Sender in the trust game as "S", the amount sent back by the Receiver in the trust game as "R", the amount sent by the Allocator in the triple dictator game by "X" and the amount sent by the Allocator in the dictator game as "Y". If transfers made by the first movers in the trust game are motivated by trust rather than altruism, then we would expect:

Accepted Answer

A)  The amount sent by first movers in the trust game "S" to be positively correlated with the proportion sent back by second movers in the trust game (R/3S) rather than the amount sent by the allocators in the triple dictator game (X). 
B)  The amount sent by first movers in the trust game "S" to be positively correlated with the amount sent by the allocators in the triple dictator game (X) rather than the proportion sent back by the second movers in the trust game (R/3S). 
C)  The amount sent by first movers in the trust game "S" to be positively correlated with the amount sent by the allocators in the dictator game (Y) rather than the proportion sent back by the second movers in the trust game (R/3S). 
D)  The amount sent by first movers in the trust game "S" to be positively correlated with the amount sent by the allocators in the dictator game (Y) rather than the amount sent back by the second movers in the trust game (R). 
A)  The amount sent by first movers in the trust game "S" to be positively correlated with the proportion sent back by second movers in the trust game (R/3S) rather than the amount sent by the allocators in the triple dictator game (X). 
B)  The amount sent by first movers in the trust game "S" to be positively correlated with the amount sent by the allocators in the triple dictator game (X) rather than the proportion sent back by the second movers in the trust game (R/3S). 
C)  The amount sent by first movers in the trust game "S" to be positively correlated with the amount sent by the allocators in the dictator game (Y) rather than the proportion sent back by the second movers in the trust game (R/3S). 
D)  The amount sent by first movers in the trust game "S" to be positively correlated with the amount sent by the allocators in the dictator game (Y) rather than the amount sent back by the second movers in the trust game (R).

Question 12

Chaudhuri and Gangadharan argue that in a trust game where amount sent by Senders is tripled: Those who are trustworthy are also trusting but the converse is not necessarily true. This implies that:

Accepted Answer

A)  Those who return more than one-third as the Receiver also send a much a higher proportion of their endowment as the Sender; those who send more as the Sender do not necessarily send back a higher proportion as the Receiver. 
B)  Those who return less than one-third as the Receiver also send a much a higher proportion of their endowment as the Sender; those who send more as the Sender also return a much higher proportion as the Receiver. 
C)  Those who send more as the Sender tend to keep all of the money received as the Receiver; those who return a higher proportion as the Receiver tend to send very small amounts as the Sender. 
D)  Senders typically send little and Receivers, upon receiving money also return very little in keeping with the backward induction equilibrium of the trust game. 
A)  Those who return more than one-third as the Receiver also send a much a higher proportion of their endowment as the Sender; those who send more as the Sender do not necessarily send back a higher proportion as the Receiver. 
B)  Those who return less than one-third as the Receiver also send a much a higher proportion of their endowment as the Sender; those who send more as the Sender also return a much higher proportion as the Receiver. 
C)  Those who send more as the Sender tend to keep all of the money received as the Receiver; those who return a higher proportion as the Receiver tend to send very small amounts as the Sender. 
D)  Senders typically send little and Receivers, upon receiving money also return very little in keeping with the backward induction equilibrium of the trust game.

Question 13

(a) Describe the Berg, Dickhaut and McCabe (1995) game. (b) What does backward induction suggest about the resolution of the game? (c) When senders send non-trivial amounts of money to the anonymous receivers, are they motivated by purely altruistic motives or are they motivated by trust and reciprocity? Briefly discuss this using at least two papers that we read on the topic and explain how these papers argue that senders are motivated by trust and reciprocity.

Accepted Answer

(a) The Berg, Dickhaut and McCabe (1995)

Question 14

In their original study, Berg et al. start the game by giving the same endowment to both the first movers and the second movers. The reason they do this is because:

Accepted Answer

A)  It would be unethical not to do so. 
B)  If the second mover did not have the same endowment and the first mover transferred money to the second mover, we would not be able to distinguish whether this was due to trust or due to inequity aversion. 
C)  If the second mover did not have the same endowment and the first mover transferred money to the second mover, we would not be able to distinguish whether this was due to inequity aversion or the fear of rejection. 
D)  Berg et al. wanted both participants to have the same bargaining power. 
A)  It would be unethical not to do so. 
B)  If the second mover did not have the same endowment and the first mover transferred money to the second mover, we would not be able to distinguish whether this was due to trust or due to inequity aversion. 
C)  If the second mover did not have the same endowment and the first mover transferred money to the second mover, we would not be able to distinguish whether this was due to inequity aversion or the fear of rejection. 
D)  Berg et al. wanted both participants to have the same bargaining power.

Question 15

(a) Describe the "trust game" introduced by Berg, Dickhaut and McCabe (1995). If people are purely payoff maximisers then what is the equilibrium prediction in this game using backward induction? 
(b) Suppose I designed an experiment where participants take part in two games: (i) the trust game that you have described above and (ii) the triple dictator game. In the triple dictator game players are paired up and each player is given $10.00. Then the first mover is told that he can send some or all of his $10.00 to the second mover. Any amount sent is tripled by the experimenter. The second mover is given this tripled amount but does not have any decision to make. Suppose I find that amounts sent in the trust game are not significantly different from those sent in the triple dictator game. Briefly explain what conclusions I can draw from this behaviour.

Accepted Answer

(a) The "trust game" introduced by Berg,

Question 16

"Trust does not pay; in the sense that on average returns to trustors is typically less than their initial endowments." This implies that:

Accepted Answer

A)  on average trustees return less than one-third of the amount received in trust games where amounts sent by Senders is tripled by the experimenter. 
B)  on average trustees return more than one-third of the amount received in trust games where amounts sent by Senders is tripled by the experimenter. 
C)  on average trustees return exactly one-third of the amount received in trust games where amounts sent by Senders is tripled by the experimenter. 
D)  on average trustees reject the trustor's offer, resulting in both players getting zero in trust games where amounts sent by Senders is tripled by the experimenter. 
A)  on average trustees return less than one-third of the amount received in trust games where amounts sent by Senders is tripled by the experimenter. 
B)  on average trustees return more than one-third of the amount received in trust games where amounts sent by Senders is tripled by the experimenter. 
C)  on average trustees return exactly one-third of the amount received in trust games where amounts sent by Senders is tripled by the experimenter. 
D)  on average trustees reject the trustor's offer, resulting in both players getting zero in trust games where amounts sent by Senders is tripled by the experimenter.

Question 17

Suppose in a trust game, any amount sent by the trustor is multiplied by 2 (i.e. doubled) and given to the receiver. With regards to this trust game, all but one of the following options will guarantee that the trustor ends up making exactly his/her initial endowment or even less. Which is the only option where this is not true?

Accepted Answer

A)  trustees return more than half of any amount received. 
B)  trustees return less than half of any amount received. 
C)  trustees return less than one-third of any amount received. 
D)  trustors keep their initial endowments. 
A)  trustees return more than half of any amount received. 
B)  trustees return less than half of any amount received. 
C)  trustees return less than one-third of any amount received. 
D)  trustors keep their initial endowments.

Question 18

In the Berg et al. trust game, denote the amount sent by the Sender in the trust game as "S", the amount sent back by the Receiver in the trust game as "R", the amount sent by the Allocator in the triple dictator game by "X" and the amount sent by the Allocator in the dictator game as "Y". If the proportional amounts returned by the second movers in the trust game are motivated by reciprocity rather than altruism, then we would expect:

Accepted Answer

A)  The proportion returned by the second movers in the trust game (R/3S) to be positively correlated with the amount sent by the allocators in the dictator game (Y) rather than the amount sent by the first mover in the trust game (S). 
B)  The proportion returned by the second movers in the trust game (R/3S) to be positively correlated with the amount sent by the first mover in the trust game (S) rather than the amount sent by the allocators in the dictator game (Y). 
C)  The proportion returned by the second movers in the trust game (R/3S) to be positively correlated with the amount sent by the allocator in the triple dictator game (X) rather than the amount sent by the allocators in the dictator game (Y). 
D)  The proportion returned by the second movers in the trust game (R/3S) to be positively correlated with the amount sent by the allocator in the dictator game (Y) rather than to the amount sent by the allocators in the triple dictator game (X). 
A)  The proportion returned by the second movers in the trust game (R/3S) to be positively correlated with the amount sent by the allocators in the dictator game (Y) rather than the amount sent by the first mover in the trust game (S). 
B)  The proportion returned by the second movers in the trust game (R/3S) to be positively correlated with the amount sent by the first mover in the trust game (S) rather than the amount sent by the allocators in the dictator game (Y). 
C)  The proportion returned by the second movers in the trust game (R/3S) to be positively correlated with the amount sent by the allocator in the triple dictator game (X) rather than the amount sent by the allocators in the dictator game (Y). 
D)  The proportion returned by the second movers in the trust game (R/3S) to be positively correlated with the amount sent by the allocator in the dictator game (Y) rather than to the amount sent by the allocators in the triple dictator game (X).

Question 19

In economics, "rent" is defined as:

Accepted Answer

A)  the difference between what one actually earns and what one could potentially have earned from the next best available option. 
B)  The amount paid by a tenant to the landlord. 
C)  Opportunity cost. 
D)  The foregone interest on money that someone holds in liquid cash rather than depositing this into a bank account. 
A)  the difference between what one actually earns and what one could potentially have earned from the next best available option. 
B)  The amount paid by a tenant to the landlord. 
C)  Opportunity cost. 
D)  The foregone interest on money that someone holds in liquid cash rather than depositing this into a bank account.

Question 20

When Frey and Oberholzer-Gee asked Swiss citizens about their willingness to accept repositories of nuclear waste in their communities, they found that:

Accepted Answer

A)  The willingness to accept such waste went up when the payment per person was increase from $2175 to $6525. 
B)  The willingness to accept such waste went up when the payment per person was reduced to $2175 from $6525. 
C)  The willingness to accept such waste went up as long as citizens were paid a certain amount per person. 
D)  A majority of the residents were willing to accept such waste when no payment was offered and this willingness actually went down when a monetary payment was offered. 
A)  The willingness to accept such waste went up when the payment per person was increase from $2175 to $6525. 
B)  The willingness to accept such waste went up when the payment per person was reduced to $2175 from $6525. 
C)  The willingness to accept such waste went up as long as citizens were paid a certain amount per person. 
D)  A majority of the residents were willing to accept such waste when no payment was offered and this willingness actually went down when a monetary payment was offered.

At the conclusion of their replication of the Berg et al. trust game. Ortmann et al. suggest that trust is a "primitive". By this they mean:

The difference between a "trust" contract and an "incentive" contract is that:

Assuming self-regarding preferences, in the Nash equilibrium of the Berg et al. trust game:

Which of the following is not a conclusion based on the Gneezy and Rustichini study of late parental arrivals at Israeli day-care centres?

Chaudhuri and Gangadharan (2007) suggest that in the context of this game, there is a disconnect between trust and trustworthiness; those who are trustworthy are also trusting but the converse is not true: Those who are trusting are not necessarily trustworthy. What do the authors mean by this?

In the gift exchange game, an incentive-based contract is one where:

"Intrinsic" motivation:

Chaudhuri and Gangadharan argue that in a trust game where amount sent by Senders is tripled: Those who are trustworthy are also trusting but the converse is not necessarily true. This implies that:

In their original study, Berg et al. start the game by giving the same endowment to both the first movers and the second movers. The reason they do this is because:

"Trust does not pay; in the sense that on average returns to trustors is typically less than their initial endowments." This implies that:

In economics, "rent" is defined as:

When Frey and Oberholzer-Gee asked Swiss citizens about their willingness to accept repositories of nuclear waste in their communities, they found that:

How We Decide

Experiments in Behavioural Economics

Gut Feelings and Effortful Thinking

Expected Utility Theory and Prospect Theory

Probabilistic Thinking

Thinking Strategically

Ultimatum Game and Market Implications

Social Dilemma Games

Coordination Problems

Behavioual Analysis of Markets

Asset Bubbles

Filters

Exam 8: Trust Game and Market Implications

At the conclusion of their replication of the Berg et al. trust game. Ortmann et al. suggest that trust is a "primitive". By this they mean:

The difference between a "trust" contract and an "incentive" contract is that:

Assuming self-regarding preferences, in the Nash equilibrium of the Berg et al. trust game:

Which of the following is not a conclusion based on the Gneezy and Rustichini study of late parental arrivals at Israeli day-care centres?

Chaudhuri and Gangadharan (2007) suggest that in the context of this game, there is a disconnect between trust and trustworthiness; those who are trustworthy are also trusting but the converse is not true: Those who are trusting are not necessarily trustworthy. What do the authors mean by this?

In the gift exchange game, an incentive-based contract is one where:

"Intrinsic" motivation:

Chaudhuri and Gangadharan argue that in a trust game where amount sent by Senders is tripled: Those who are trustworthy are also trusting but the converse is not necessarily true. This implies that:

In their original study, Berg et al. start the game by giving the same endowment to both the first movers and the second movers. The reason they do this is because:

"Trust does not pay; in the sense that on average returns to trustors is typically less than their initial endowments." This implies that:

In economics, "rent" is defined as:

When Frey and Oberholzer-Gee asked Swiss citizens about their willingness to accept repositories of nuclear waste in their communities, they found that:

How We Decide

Experiments in Behavioural Economics

Gut Feelings and Effortful Thinking

Expected Utility Theory and Prospect Theory

Probabilistic Thinking

Thinking Strategically

Ultimatum Game and Market Implications

Social Dilemma Games

Coordination Problems

Behavioual Analysis of Markets

Asset Bubbles

Filters