House money effects on trust and reciprocity

Daniel Edward Houser, Erte Xiao

Research output: Contribution to journalArticleResearchpeer-review

3 Citations (Scopus)

Abstract

In a typical laboratory Investment Game experiment, participants endowments are provided by the experimenter; thus, the worst case for the investor is that she loses all of her found money. By contrast, in naturally occurring environments, investment decisions can often lead to a loss of one s own money. This paper investigates whether trust found in one-shot anonymous laboratory interaction is robust to own money environments. Our results show that, consistent with previous investment game results, most investors send a positive amount, and most trustees return at least the transfer amount, regardless of whether the investors purchase or are gifted their endowment. However, investments are on average lower when participants use their own money, and the fraction of maximum investments (the most risky investment decision) is only half as large under own money as it is under gifted endowments. Our results explain why one should exercise caution in placing trust in any government s ability to spend other people s money prudently.
Original languageEnglish
Pages (from-to)187 - 199
Number of pages13
JournalPublic Choice
Volume163
Issue number1
DOIs
Publication statusPublished - 2015

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