Deck 8: Trust Game and Market Implications

Question 1

"Intrinsic" motivation:

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.

Answer 1

explains why we often do good even if no one is watching or there are no external rewards.

Question 2

"Extrinsic" motivation:

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 one's internal desire to do one's best.

Answer 2

arises from external rewards and punishment designed to motivate better performance.

Question 3

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?

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.

Answer 3

trustees return more than half of any amount received.

Question 4

The difference between the trust game and the triple dictator game is that:

A) in the triple dictator game, any amount sent by the first mover is tripled and given to the second mover; the second mover has no action to take.
B) in the triple dictator game, any amount sent by the first mover is tripled and given to the second mover; the second mover can then return how much of this amount, if any, to return to the first mover.
C) in the triple dictator game, any amount sent by the first mover is given to the second mover; the second mover has no action to take.
D) in the trust game, any amount sent by the first mover is tripled and given to the second mover; the second mover has no action to take.

Question 5

In a dictator game ______________ while in the triple dictator game _______________.

A) any amount sent by the first mover is tripled and given to the second mover with no action necessary for the second mover; in the triple dictator game, any amount sent by the first mover is given to the second mover with no action necessary for the second mover.
B) Any amount sent by the first mover is tripled and given to the second mover with no action necessary for the second mover; any amount sent by the first mover is tripled and given to the second mover and the second mover can then decide how much of this amount, if any, to return to the first mover.
C) Any amount sent by the first mover is tripled and given to the second mover and the second mover can then decide how much of this amount, if any, to return to the first mover; any amount sent by the first mover is tripled and given to the second mover with no action necessary for the second mover.
D) Any amount sent by the first mover is given to the second mover with no action necessary for the second mover; any amount sent by the first mover is tripled and given to the second mover with no action necessary for the second mover.

Question 6

With regards to the trust game, the fact that often trust does not pay may be attributed to the fact that:

A) Players do not necessarily attribute the same interpretation to game strategies and action sets as the experimenter; when the strategic contingencies underlying the game are explained, returns to trust increases.
B) Players always attribute the same interpretation to game strategies and action sets as the experimenter; they realize that a trusting move is not part of the Nash equilibrium of the game.
C) Players realize that trust and trustworthiness are in keeping with the subgame perfect Nash equilibrium of the sequential game (assuming purely money-maximizing preferences) but are not sure everyone else understands that.
D) Players do not necessarily attribute the same interpretation to game strategies and action sets as the experimenter; they do not realize that trust and trustworthiness are in keeping with the subgame perfect Nash equilibrium of the sequential game (assuming purely money-maximizing preferences).

Question 7

In the trust game, where amounts send by Senders is tripled before reaching Receivers, in order for a trusting action to increase payoff over and above the initial endowment for the trustors:

A) trustees must return more than one-third or of the amount received.
B) trustors should never send any money.
C) trustees should never return any money.
D) trustors should keep their initial endowment.

Question 8

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

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

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

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 10

In trust games where amounts sent by Senders is tripled by the experimenter "trust does not pay" in the sense that on average returns to trustors is typically less than their initial endowments." One possibility for why this happens is that:

A) participants do not necessarily interpret the game in the same way; explaining the underlying strategic implications usually leads to higher returns from trust.
B) on average trustees return more than one-third of the amount received.
C) a certain amount of confusion needs to be allowed for; explaining the underlying strategic implications usually leads to even less trust.
D) on average trustees reject the trustor's offer, resulting in both players getting zero.

Question 11

The evidence from the gift exchange game literature suggests that:

A) Labour contracts based on mutual trust and reciprocity elicit similar levels of effort as those based on explicit rewards and penalties.
B) Labour contracts based on mutual trust and reciprocity elicit much less effort than those based on explicit rewards and penalties.
C) Labour contracts based on mutual trust and reciprocity lead to massive amounts of shirking by the workers and such contracts are effectively useless.
D) Labour contracts that appeal to the intrinsic motivation of workers lead to massive amounts of shirking by the workers and such contracts are effectively useless.

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:

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

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:

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 14

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 increasing total welfare rather than trust, then we would expect:

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 15

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:

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 16

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 altruism rather than reciprocity, then we would expect:

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 movers 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 movers in the trust game (S) rather than to 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 allocators in the triple dictator game (X) rather than to 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 allocators in the dictator game (Y) rather than to the amount sent by the allocators in the triple dictator game (X).

Question 17

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:

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.

Question 18

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

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.

Question 19

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:

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 20

The study by Kosfeld et al. where participants are administered oxytocin prior to taking part in the trust game is designed to:

A) Distinguish between trust and reciprocity.
B) Explore the role of expectation in the decision by the first movers to send money in this game.
C) Distinguish between the Nash equilibrium prediction and the social optimum.
D) Distinguish between trusting decisions and decisions made under risk.

Question 21

The results reported by Eckel and Wilson based on their findings using the Zuckerman Sensation Seeking Scale suggest that

A) There is little evidence that the decision to trust is perceived in the same way as a risky choice.
B) There is strong evidence that the decision to trust is perceived in the same way as a risky choice.
C) There is strong evidence that the decision to send money by the first movers is based on expected reciprocation from the second mover.
D) There is strong evidence that the decision to send money by the first movers is correlated with the decision to send money in the triple dictator game.

Question 22

Which of the following is not a suitable way to distinguish between altruistic motives and trusting motives on the part of the first movers in the trust game?

A) Compare behaviour of first movers in the trust game with the behaviour of those same participants in the dictator game.
B) Compare behaviour of first movers in the trust game with the behaviour of those same participants in the triple dictator game.
C) Explore the correlation between money sent by first movers in the trust game with the amount they expect back from the paired second movers.
D) Compare behaviour of first movers in the trust game with the behaviour of those same participants in the ultimatum game.

Question 23

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

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 24

Two key components of the loan system implemented by the Grameen Bank of Bangladesh are:

A) Heavy penalties for late payments and constant individual monitoring of loan recipients by bank employees.
B) Formation of solidarity groups and peer monitoring of loan recipients within the same village.
C) Heavy penalties for late payments and peer monitoring of loan recipients within the same village.
D) Constant individual monitoring of loan recipients by bank employees and exclusion from receiving future loans in the event of default.

Question 25

Work done by Truman Bewley of Yale University suggests that during recessions managers of most enterprises are reluctant to enact a reduction in wages even though, given the extensive unemployment, they could have easily afforded to hire workers at lower wages. The primary resistance to wage reduction comes from upper management and not from employees. Bewley suggests that the main reason for avoiding pay-cuts is that such pay-cuts hurt morale. Which of the following is not an integral component of worker morale?

A) Identification with the firm and an internalization of its objectives.
B) Trust in an implicit exchange with the firm and with other employees.
C) A mood that is conducive to good work.
D) Monitoring of worker performance by their immediate managers.

Question 26

According to research undertaken by Truman Bewley of Yale University businesses are reluctant to cut wages during recessions even if they can do easily due to large scale unemployment. This reluctance to cut wages comes from upper management rather than the workers. Which of the following is not a reason for management's reluctant to cut wages?

A) Workers are used to receiving regular pay increases as a reward for good work and loyalty and so interpret a pay cut as an affront and a breach of implicit reciprocity.
B) Resistance to wage reduction stem from ideas of fairness that usually refer to some reference wage. The reference wage for pay cuts is the previous wage.
C) Pay cuts may end up costing the business more in terms of reduced morale and productivity.
D) Pay cuts are hard to implement and monitor effectively. Layoffs are a much easier way of reducing wage costs.

Question 27

In economics, "rent" is defined as:

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 28

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

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.

Question 29

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

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.

Question 30

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?

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 31

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?

Question 32

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?

Question 33

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". How do Ashraf, Bohnet and Piankov use the dictator game, the triple dictator game and the trust game to distinguish between (a) trust and altruism and (b) reciprocity and altruism?

Question 34

(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.

Question 35

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?

Question 36

Consider the following two two-player games - Game 1 and Game 2. In each game, 1 and 2 refer to the two players. The first number in each payoff box refers to the payoff for player 1 and the second number to the payoff for player 2. The strategies L, R, and D stand for Left, Right and Down respectively. At each node I have shown the player who gets to move at that node.
Game 1:
Game 2:
(a) What is the subgame perfect equilibrium in Game 1 and Game 2? (It is the same in both games. So you only need to solve for it once.) (b) In which game - 1 or 2 - is the symmetric joint payoff maximizing outcome of (100, 100) more likely? Is it Game 1 or Game 2? Why? Explain briefly.

Question 37

(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.

Question 38

The study by Snijders and Keren suggests that the decision to send money or not as the first mover in a trust game is analogous to decision making under risk. Discuss at least one study that shows that the decision to send money in the trust game involves calculations above and beyond any considerations of risk.