Investor's Pessimistic and False Belief About Trustworthiness and Stake Size in Trust Decision1

Trust is a vital element of any society. Previous studies using trust games have provided insight into understandings of trusting behavior. However, investors' behaviors can be confounded by their risk preferences in the game, and little is known about the relationship between stake size and beliefs of others' good intentions underlying trust. We thus used a variant of the trust game and conducted two experiments to examine how stake size affects investors' beliefs about receivers' trustworthiness, with model-based analyses. We showed that, when holding all else equal, investors trusted more, but their expectations of reciprocation declined as stake size increased. However, actual receivers' reciprocation rates showed the opposite trend to investors' pessimistic beliefs. Furthermore, following previous studies in social psychology, we hypothesized that investors' social preferences (social value orientation) moderated the beliefs underlying trust, but they had no explanatory powers in investors' expectations of reciprocation. These results suggest that peoples' naive beliefs about stake size play a more important role in trust decisions than expected.     

Experimental consideration of preference in decision making under certainty

This paper describes an experiment in decision making under certainty with multiple, conflicting objectives and continuous decision variables. Two techniques for analysing such problems are considered: one taken from the paradigm of multicriteria decision making (MCDM), a non-directed approach called the NAIVE technique, and one from the paradigm of multiattribute decision analysis (D/A), the SMART technique. While the two techniques seek and are throught to arrive at the same end—a solution which is in some sense optimal for the decision maker (DM)—the former approach implicitly incorporates DM preferences while the latter approach considers preferences explicitly. The setting is a laboratory study using a sample of university students on a three-criteria problem which is designed to study the extent to which value functions implied/assessed by the techniques are consistent with DMs' holistic ranking of alternatives. Results show that (1) the two techniques of interest show significantly better rank order correlation with holistic judgement compared with other techniques, (2) DMs prefer the non-directed MCDM approach and (3) subjects break down into two groups: those that use assessable value functions when ranking and those that do not. This implies that for small-dimensioned problems DMs may first need to be classified as to the assessability of their value functions before a solution method is chosen.