An experiment on trust behavior: the endowment and reputation effect on fear, temptation, and cooperation in continuous trust game

Abstract

This thesis explores the dynamics of trust and trust-based behaviors such as fear, greed, and cooperation in a continuous trust game experiment, comparing a model based on the Prisoner's Dilemma with a proposed theoretical model for the FTC (Fear, Temptation, and Cooperation) Index. The study hypothesizes that financial conditions, specifically initial endowments and social conditions, such as Reputation, would influence trust-related decisions by reducing fear and greed and promoting cooperation. The research explored various non-parametric analyses and regression to explore the latent effect of the Endowment and Reputation through their mediators on fear, greed, and cooperation. Surprisingly, initial endowment proved insignificant across both models and regression analyses, suggesting that financial factors may not play as vital a role as anticipated. Instead, social factors, particularly reputation, significantly influenced trust behavior. The findings indicate that a healthy, trust-promoting environment fosters cooperation more effectively than financial incentives alone. The proposed model better captures these social dynamics and outperforms the Prisoner's Dilemma-based model in predicting trust-related outcomes. This research underscores the complexity of human decision-making, where psychological and social elements, such as reputation, often outweigh financial considerations in fostering trust and cooperation, reducing societal and individual fear and greed.