Marco Castillo, Associate Professor of Economics at George Mason University and ICES Faculty member, has an article in the latest issue of the Southern Economic Journal.
The paper, Moral Hazard and Reciprocity, was co-authored with Gregory Leo of the University of California – Santa Barbara. It addresses the effects of anonymity and knowledge asymmetry on reciprocity in the context of a modified trust game.
We investigate the motives behind reciprocal behavior by making selfish acts anonymous and not common knowledge. In one treatment, subjects were assigned to the role of proposer or responder and played a trust game with random matching for 20 rounds. In a second treatment, the modified game, the procedures were the same, but responders were allowed to choose with only 80% probability. With 20% probability, responders were restricted to keep any money passed. Only responders knew whether they were restricted or not. We find that the behavior of responders is different in this modified trust game. The fact that responders can hide selfish acts generates more selfish behavior. This in turn makes proposers less likely to pass money to responders, thereby destroying trust. We find important session effects in the standard trust game but less so in the modified game. Our experiments show that information conveyed in actions is important to subjects’ decisions.
Castillo, Marco and Gregory Leo. “Moral Hazard and Reciprocity.” Southern Economic Journal 77, no. 2 (October 2010): 271-281.