Deck 16: Trust and Reciprocity

Question 1

Trust refers to a willingness to place others in a position to make decisions that can help or harm you.

Answer 1

True

Question 2

Trust is similar to fairness and altruism - you only need to observe a single choice by a single individual in order to detect it.

Answer 2

False

Question 3

Social capital refers to relationships an individual has from which they can ask for resources.

Answer 3

True

Question 4

Trusting a person involves risk. Therefore, more risk-seeking individuals will always be more trusting.

Question 5

Consider Figure 16.3. Without "trust" the game would end at the first node with Player 1
playing T.

Question 6

Altruism is to a preference for fairness as trust is to reciprocity.

Question 7

Sarah hires her friend Ben, who is studying accounting, to do and file her taxes. Ben and Sarah both know that if Ben does not put in full effort then it is highly likely that if Sarah gets audited they will find mistakes and Sarah will be punished. Because Ben's actions are hidden
from Sarah, but his actions also directly affect Sarah, this can be considered a situation of moral hazard.

Question 8

One of the important by-products of reputation is trust.

Question 9

Contracts are only effective if the punishments for violating the contract are credible and severe enough.

Question 10

Altruism and fairness are to simultaneous moves games as trust and reciprocity are to sequential move games.

Question 11

Trust and reciprocity fall into the category of "other-regarding preferences" because the act of trust necessarily requires that the trusting individual's pay-off can be directly affected by another individual.

Question 12

Actions are to reciprocity as intentions are to fairness.

Question 13

Evidence suggests that people who are more trusting are also more trustworthy.

Question 14

There is evidence that acts of trust and distrust are equally weighted by an individual.

Question 15

Without trust

A) All individuals act selfishly
B) All individuals must act altruistically.
C) Economic transactions become more costly.
D) Individuals will act spitefully.

Question 16

Consider the trust game. How many subgames are in the trust game?

A) 1
B) 2
C) 3
D) 0

Question 17

Which of the following finding does laboratory and empirical evidence support:

A) High social capital causes people to be more trusting.
B) Being a trusting person causes people to have higher levels of human capital.
C) Being a trustworthy person causes people to have higher levels of human capital.
D) There is a strong positive correlation between levels of social capital and trust.

Question 18

Which of the following is an example of cheap talk?

A) Two firms sign a contract agreeing to mutually beneficial actions.
B) I sign a lease with my landlord agreeing to pay $\$ 500$ on the first of every month.
C) I verbally swear in court to tell the truth.
D) I promise my mom that I will not go to the party.

Question 19

Consider Figure 16.3. Realizing the pay-offs $(1.20,1.20)$ may rely on all of the following notions except

A) Trust.
B) Reciprocity.
C) Altruism.
D) Spite.

Question 20

Altruism is to spite as reciprocity is to

A) Opportunism.
B) Mistrust.
C) Inequity.
D) Revenge.

Question 21

Trust and reciprocity

A) Rely on actions, not intention.
B) Are equivalent to altruism and kindness.
C) Rely on intention, not action.
D) Are equivalent to spit and cruelty.

Question 22

The tendency to believe sources MORE when carrying information about an individual involved in a trust-destroying event than when the same individual is involved in a trustbuilding event is an example of the confirmation bias only if

A) Our prior hypothesis was that the individual was more prone to build trust than to destroy trust.
B) Our prior hypothesis was that the individual was more prone to destroy trust than to build trust.
C) Our prior hypothesis was that the source was reliable.
D) Our prior hypothesis was that the source was unreliable.

Question 23

Sam wants to do something nice for his partner Alex. Sam buys Alex some chocolate covered peanuts. Unfortunately, Alex has a severe allergic reaction and must be rushed to the hospital. Luckily, Alex makes a speedy recovery. At first, Alex is furious with Sam, but then decides that "it's the thought that counts" and decides to do something nice for Sam and spends $\$ 100$ on a new pair of shoes for Sam.

A) Alex's reaction can be considered reciprocating.
B) Alex's reaction can be considered fair.
C) Alex's reaction can be considered spiteful.
D) Alex's reaction can be considered trustworthy.

Question 24

Sam wants to do something nice for his partner Alex. Sam buys Alex some chocolate covered peanuts. Unfortunately, Alex has a severe allergic reaction and must be rushed to the hospital. Luckily, Alex makes a speedy recovery. Alex is furious with Sam and refuses to speak to him for several weeks.

A) Alex's reaction can be considered reciprocal.
B) Alex's reaction can be considered fair.
C) Alex's reaction can be considered altruistic.
D) Alex's reaction can be considered trustworthy.

Question 25

Describe the trust game.

Question 26

Consider a modified version of the trust game. The receiver is now required to return a certain percentage of the sender's money. How does this modification affect our interpretation of the results?

Question 27

Billy and Crystal want to do business together. Since this joint venture is highly risky for both parties, they hire a lawyer to draft and monitor a contract. The contract gives both Billy and Crystal assurance that the other will follow through on their promises. Identify the "transaction cost" in this arrangement.

Question 28

Why might a trust-destroying event be more prominent when making a decision than a trust-building event?

Question 29

Early studies of trust relied on surveys to understand the level of trust people displayed. The popular survey question was "Generally speaking, would you say that most people can be trusted or that you can't be too careful in dealing with people?" What are some of the possible problems in using this as a measure of trust?

Question 30

Offer a suggestion of how to reconcile these two findings: (1) increased levels of trust are associated with accelerated growth in GDP; and (2) On average, in trust games senders are likely to send the same amounts in South Africa as in the U.S.