Motivating trust: Can mood and incentives increase interpersonal trust?

Accepted Manuscript

Motivating Trust: Can Mood and Incentives Increase Interpersonal Trust? Alexandra Mislin , Lisa V. Williams , Brooke A. Shaughnessy PII: DOI: Reference:

S2214-8043(15)00074-9 10.1016/j.socec.2015.06.001 JBEE 128

To appear in:

Journal of Behavioral and Experimental

Received date: Revised date: Accepted date:

14 October 2014 26 April 2015 3 June 2015

Please cite this article as: Alexandra Mislin , Lisa V. Williams , Brooke A. Shaughnessy , Motivating Trust: Can Mood and Incentives Increase Interpersonal Trust?, Journal of Behavioral and Experimental (2015), doi: 10.1016/j.socec.2015.06.001

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Highlights  We test whether emotions and incentives can motivate trust behavior.  Participants in a happy mood were more likely to trust and trust more.  Higher potential gains from trust increase likelihood of but not degree of trust.  Trust can be motivated by exogenous psychological factors and pecuniary incentives.

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Motivating Trust: Can Mood and Incentives Increase Interpersonal Trust?

Alexandra Mislin American University Kogod School of Business

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Lisa V. Williams Niagara University College of Business Administration

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Brooke A. Shaughnessy Fakultät für Betriebswirtschaft Ludwig-Maximilians-Universität München

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April 26, 2015

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Running Head: Motivating Trust

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Address correspondence regarding this manuscript to: Alexandra Mislin, American University, Kogod School of Business, 4400 Massachusetts Avenue, NW, Washington, DC 20016, [email protected].

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Acknowledgements: We would like to acknowledge The State University of New York at Buffalo School of Management, Faculty Research Fund, for its generous support of this research. The scope of Fund involvement was limited to monetary support for our data collection efforts.

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Motivating Trust: Can Mood and Incentives Increase Interpersonal Trust? Abstract

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This paper examines the decision to trust anonymous others in the two-person trust-game. Our experiment tests predictions that the decision to trust an unknown other can be motivated by exogenous factors. We consider the effects of changes to incentives as well as psychological state by manipulating the trustors’ possible gains from trusting and their mood. Results indicate that a happy mood, as well as higher possible gains from trusting, increase the likelihood of trust behavior. The motivating power of these incentives, however, depends on the mood of the trustor. We also find that a happy mood motivates a higher degree of trust, while higher potential gains from trusting do not. Implications for trustworthiness behaviors are also discussed.

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Keywords: Trust; Experiment; Trust game; Incentives; Emotions

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1. Introduction “From now on it must become a relationship either of cordiality or hostility.” -Levi-Strauss, 1957, c.f. Blau, 1964 The first offer of positive acknowledgement – a warm welcome, a handshake, or an offer

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of assistance – toward a stranger is one of the purest expressions of good will because it is not motivated by obligations to reciprocate past generous acts (Simmel, 1908). It is an invitation to engage in a positive interaction with an orientation toward the present or future. This first offer of positive acknowledgement is pivotal to the development of a productive and trusting

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relationship between two previously indifferent individuals (Blau, 1964; Zand, 1972; Ferrin, Bligh, and Kohles, 2007). People’s decisions to trust others are valuable to business and economic development because they lower transaction costs (Arrow, 1974), reduce the cost of monitoring (Frank, 1988), lower employee turnover (Dirks and Ferrin, 2002), and promote levels

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of uncompensated positive employee behaviors (Dirks and Ferrin, 2002; Konovsky and Pugh,

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1994). Yet despite the acknowledged importance of this initial gesture, relatively little is known about whether it can be externally motivated. The current paper investigates two potential factors

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that might motivate initial trust – the incentive structure surrounding the decision to trust and the mood of the decision-maker.

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Both pecuniary and non-pecuniary incentives can motivate social action in exchange (e.g., Mirrlees, 1976; Shavell, 1979; Fehr and Falk, 1999; Miller and Whitford, 2002). Pecuniary

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incentives in the form of higher stakes have been found to reduce trust (e.g., Johansson-Stenman, Mahmud, and Martinsson, 2005) while higher potential gains from trust have been hypothesized to enter into a person’s trust calculation and motivate trust (Coleman, 1990; Mayer and Davis, 1999). Emotions in turn are also fundamental and powerful non-pecuniary motivators of human behavior that are triggered during social interactions (e.g., Damasio, 1994; Fredrickson, 1998;

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Lazarus, 1991). Recent developments in emotion research suggest that a happy emotion state increases a person’s intention to trust both known and unknown others (Dunn and Schweitzer, 2005). Indeed, other research has found that when individuals experience increased levels of Oxytocin, a chemical released when individuals engage in positive social interactions, they are

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more likely to trust (Kosfeld, Heinrichs, Zak, Fischbacher, and Fehr, 2005). While the

motivating power of increased potential gains has been hypothesized to affect trust, and while a positive emotion state has been shown to affect trust judgments, it is not known whether these factors can in fact motivate trust behavior. It is also not clear how these different factors, one

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psychological and one contextual, influence trust when both are present.

This paper makes a contribution to the limited literature on how to motivate trust decisions by testing whether an adjustment to the incentive context or a positive emotion state

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can promote trust. We predict that higher possible gains from trusting will increase the likelihood of trust behavior, and we also expect a happy emotion state to motivate trust. When both factors

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are simultaneously present, we expect that pecuniary incentives, through higher possible gains, will not motivate trustors who are already in a happy state to trust more. We test our hypotheses

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in a laboratory setting using the ‘trust game’ (Berg, Dickhaut, and McCabe, 1995) to simulate an

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exchange environment where subjects carefully consider the costs and benefits of their decision to trust. We investigate the effects of these external factors on initial trust and the underlying

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motivations triggered by the trusting party’s emotion state.

2. Literature Review and Hypotheses Trust has been studied across a range of disciplines as “a psychological state comprising the intention to accept vulnerability based upon positive expectations of the intentions or

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behavior of another” (Rousseau, et al., 1998, p. 395). This multi-disciplinary work on trust can be organized into two broad categories: an ‘economic’ tradition that is grounded in observable trust choices and rational expectations, and a ‘psychological’ tradition that is grounded in cognitive and affective processes, focusing on trust beliefs or expectations rather than behavior

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(Lewicki, Tomlinson, and Gillespie, 2006; Kramer, 1999). These distinct approaches have led researchers to pursue different research questions and different understandings of the factors underlying and influencing trust (Lewicki, Tomlinson, and Gillespie, 2006). For example, the economic tradition has focused on the behavioral manifestations of trust (i.e., trust-related risk

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taking) that represent the willingness to be vulnerable (Colquitt, Scott, and LePine, 2007), and has made inferences about intentions and degrees of trust and trustworthiness based on the level and frequency of cooperative choices made (e.g., Berg, Dickhaut, and McCabe, 1995). The

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psychological tradition, in contrast, has focused on the intra- and interpersonal processes and states associated with trust (e.g., Mayer, Davis, and Schoorman, 1995; McAllister, 1995;

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Rousseau et al., 1998), examining how internal factors such as feelings toward the other and emotions experienced influence the confident expectation that trust will be respected (Davidson,

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1993).

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When considered together, these different traditions of trust research highlight an opportunity to uncover how initial trust in an unfamiliar other can be motivated through either

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psychological or contextual factors. We focus on emotions and potential gains because these factors are prevalent in social interactions and they have been found to influence trust in the psychological and economic traditions. Research along the psychological tradition has identified that incidental positive emotions can increase intentions to engage in trust behavior (Dunn and Schweitzer, 2005), and research in the economic tradition has identified that the incentives

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involved in the exchange influence levels of trust behavior (Johansson-Stenman, Mahmud, and Martinsson, 2005). Accordingly, we focus on the effects of incidental positive emotions and the potential gains from trusting on trust decisions in anonymous exchange and also consider how

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these factors interact.

2.1 Incentives

Research using the economic tradition has found that certain factors describing the

exchange context surrounding the trust decision, such as the stakes involved in the exchange

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(Johansson-Stenman, Mahmud, and Martinsson, 2005), can influence trust behavior. Stakes have traditionally been studied as the amount of money that is being invested in a risky exchange with an anonymous counterpart. A study conducted in rural Bangladesh found that as stakes

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increased, individuals trusted less (Johansson-Stenman, Mahmud, and Martinsson, 2005). It may, however, not always be possible or practical to lower the stakes involved in an exchange

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transaction in an effort to incentivize trust. Sometimes there is a minimum investment that must be made for an interaction to occur at all. So, what might entice a trustor to increase his or her

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stakes to participate in an exchange based on trust? And to extend this, how might the

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entrepreneur or job candidate entice the trustor to invest at the higher end of a given range? To answer these questions, we focus on differences in potential gains from trust, that is

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the potential ‘rate of return’ on trust as opposed to the size of the investment, since this is something that may serve as an incentive which a leader might more easily control and adjust in business exchange settings to promote trust. Coleman’s (1990) conceptualization of trust assumes that potential gains from trust influence whether a person will trust. According to him, a rational actor will place trust based on a comparison of the ratios of the (1) chance of gain to

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loss, and (2) amount of potential loss to gain; when the first ratio is higher than the second a rational actor will engage in trust. The implication is that people should be more willing to trust when there is a greater potential gain from their trust, all else equal. Subordinates, for example, may be more willing to place trust in their leaders if they perceive greater potential benefits from

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trusting a trustworthy leader (e.g., they may be more willing to comply with a leader’s request outside the scope of their job if the leader’s trustworthy behavior has the potential to significantly enhance promotional opportunities).

To further consider this phenomenon, research from the psychological tradition presents a

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slightly different perspective on the relationship between contextual factors and trust. This work is generally focused on trust intentions based on a willingness to be vulnerable and a positive expectation that the counterpart is dependable (Mayer, Davis, and Schoorman, 1995), and to

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date, these intentions have not been studied as a function of contextual factors such as potential gains from trust. Some theoretical work in this tradition has, however, posited that the

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consequences of trust (trust behavior) would in fact be influenced by contextual factors that include the possible gains and potential losses that may be incurred from exchange with the

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trustee (Mayer, Davis, and Schoorman, 1995, p. 726). These factors influence trust behavior

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through changes to the perception of risk involved in the exchange. Together with Coleman’s (1990) expectation that greater potential rewards lead to trust, this leads us to our first

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hypothesis:

H1: Greater potential gains from trust will positively influence an individual’s (a) decision to trust, as well as (b) the degree of trust in the counterpart.

2.2 Positive Emotions

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Researchers examining trust within the economic tradition have generally not considered the effect of psychological factors such as incidental positive emotions (Zak’s (2010) work examining the relationship between moral sentiments and prosocial behavior is a notable exception). The psychological tradition of trust, in contrast, has found that attributions about a

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counterpart can be influenced by situational factors, such as incidental affect, that influence individual judgments and cognitions. Affect is a general term that encompasses both moods and emotions (i.e., components of the psychological state that comprises trust). Moods are “lowintensity, diffuse and relatively enduring affective states without a salient antecedent cause and

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hence little cognitive content (e.g., feel good or feel bad)” (Forgas and George, 2001), while emotions are usually “shorter in duration, more intense, and the result of a specific cause” (Schwarz, 1990).1 The following review of the relevant literature employs the terms for the

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actual phenomena studied (e.g., mood versus incidental emotion). We assert that it is the experience of a particular mood that will bear on trust, not the length of time the emotion is

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experienced, so our focus is incidental emotion (i.e., emotion that is unrelated to the immediate matter at hand). Accordingly, studies that consider mood and emotion are both relevant.

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Short, affect-inducing stimuli preceding an exchange have been found to promote

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optimism (Fredrickson et al., 2003) and lead people to make more favorable evaluations of others (Forgas and Bower, 1987; Gouaux, 1971; Veitch and Griffitt, 1976), which are

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mechanisms of trust (Lewicki and McAllister, 1998; Rousseau et al., 1998). Research has also shown that an incidental happy emotion experience can promote expectations of trustworthiness and intentions to engage in trust behavior (Dunn and Schweitzer, 2005). For example, Dunn and 1

While there is a clear theoretical distinction between mood and emotions, this distinction is less distinct at an empirical level. “In research practice, virtually identical techniques are used for inducing positive moods and positive emotions (e.g., giving gifts, viewing comedies). As a consequence, much of the sizable literature on the effects of positive mood on cognition and behavior (Aspinwall, 1998; Isen 1987, 2000) is directly relevant to positive emotions” (Fredrickson and Branigan, 2001).

ACCEPTED MANUSCRIPT Motivating Trust 10 Schweitzer (2005) conducted an investigation of the effects of incidental emotions on the intentions, expectations, and perceptions related to dyadic trust and found that other-related emotions (e.g., anger and gratitude) exert more influence on trust judgments than emotions related to perceptions of situational control (e.g., guilt and sadness). This research has identified

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an important relationship between incidental emotions and trust, but it leaves open the question whether positive emotions would also produce changes in trust behavior. This is a distinct

theoretical and empirical question, as attitudes do not necessarily correspond with behaviors (Fishbein, 1979; Mayer, Davis, and Schoorman, 1995), and trust behaviors are the underpinnings

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of interpersonal relationships (Lewis and Weigert, 1985).

Emotion theorists have advanced a number of theoretical explanations for how positive affect influences cognition, judgment, and potential behaviors. The mood-as-information model

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(Schwarz, 1990; Schwarz and Clore, 1983; Schwarz and Clore, 1996) suggests that mood can serve as information to guide our decision process when we are trying to make an evaluative

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judgment; specifically, when the source of a mood is not salient, individuals will ask themselves ‘how do I feel about this?’ and use their unrelated current moods to inform their judgments and

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resulting actions. If we apply this theory to trust-based initial interactions, the theory suggests

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that incidental positive emotion (e.g., happiness) will color perceptions of the matter at hand such that happy persons will relate their happiness to the decision about whether to trust

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someone. The resulting attitude would be, “I feel happy now so I must feel good about trusting this person.” And so, the individual would choose to behave in a trusting way. Another model that has received substantial empirical support is the mood maintenance

model (e.g., Isen, 1970; Isen and Levin, 1972; Isen, Nygren, and Ashby, 1988), which posits that people prefer being in a positive emotion state, and as a result, they are motivated to behave in

ACCEPTED MANUSCRIPT Motivating Trust 11 ways (e.g., helping and altruistic behaviors) that promote a positive state (Clark and Isen, 1982; Isen and Simmonds, 1978). The mood maintenance model informs behavioral trust choices in two ways. First, because individuals are motivated to maintain positive emotion states, they are more likely to emphasize positive information or opportunities and minimize threatening or

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negative information. That is, individuals who are making decisions about whether to engage in trusting behaviors would give more weight to positive information, which should lead to a higher occurrence of choosing trust behaviors. Furthermore, trust is a social phenomenon (Lewis and Weigert, 1985) associated with developing positive relationships, and is considered by some to

order to maintain a positive emotion state.

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be the “right” thing to do (Hosmer, 1995). As a result, individuals would be motivated to trust in

The implication of both of these models is that positive emotions should produce not just

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greater trust and expectations of trust, but also increased trust behavior. A situational factor that induces a happy incidental emotion in a person should promote positive expectations of the

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counterpart (Dunn and Schweitzer, 2005) and also produce greater trust behavior. We therefore predict that:

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H2. The experience of happy incidental emotions will increase (a) the likelihood that an individual will decide to trust a counterpart as well as (b) the degree of trust in that counterpart.

2.3 Incentives and Emotions Combined

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Theories of positive emotions suggest that a positive emotion state signals to an

individual that ‘all is well’ and there are no immediate threats (Schwarz and Clore, 1983; 1988). People experiencing a positive mood are more optimistic (Fredrickson et al., 2003) and are more willing to see the constructive side of a social interaction (Forgas, Bower, and Krantz, 1984). A happy mood also increases favorable evaluations of others (Forgas and Bower, 1987, Gouaux,

ACCEPTED MANUSCRIPT Motivating Trust 12 1971; Veitch and Griffitt, 1976) and a willingness to trust unfamiliar others (Dunn and Schweitzer, 2005). Overall, people experiencing a positive mood are less calculative when making decisions and rely more heavily on heuristic processing (Park and Banaji, 2000). We therefore predict that such an increased reliance on heuristic processing would also lead people

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who are deciding whether to trust a counterpart to invest less effort in calculating the potential gains from a trustworthy counterpart. As a result, when people experience happiness, we expect that incentives will no longer be as effective a tool for motivating trust behavior. The implication is that in this sense, positive emotions and potential gains each act separately to motivate the

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decision to trust, but when introduced together only the positive mood will motivate trust, not the incentive devised through greater potential gains. Specifically,

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H3: When the party experiences a neutral (happy) incidental emotion, greater potential gains from trust will (not) increase (a) the likelihood that an individual will decide to trust a counterpart as well as (b) how much they trust that counterpart.

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3. Experimental Design

We investigate our predictions in a laboratory study that uses an actual exchange setting

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with real money at stake. We use Berg, Dickhaut, and McCabe’s (1995) (continuous choice) game to measure trust because the design allows us to test for both the degree of trust as well as

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the presence or absence of trust without having to arbitrarily choose a trust cut-off point below which trust behavior is considered nil. Any positive amount passed represents trust behavior, and

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this game also allows us to concurrently capture data representing the degree to which participants might trust by examining the specific amount they pass to their counterpart. Prior research using similar paradigms provides support for the importance of obtaining data related to both of these variables. Some studies have focused on trust behavior and its degree using a continuous set of choices (e.g., Berg, Dickhaut, and McCabe, 1995; Ashraf, Bohnet, and

ACCEPTED MANUSCRIPT Motivating Trust 13 Piankov, 2006; Pillutla, Malhotra, and Murnighan, 2003) while other studies forced players to make dichotomous choices to capture the presence or absence of trust (e.g., Bohnet et al., 2008; Malhotra, 2004; Camerer and Weigelt, 1988). In Berg, Dickhaut and McCabe’s (1995) original design, participants are randomly and

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anonymously paired and assigned to either the role of sender or receiver and endowed with $10. At stage one of the interaction, those assigned to the sender role may either pass nothing, or any portion x of the endowment (0 < x  10) to their anonymous counterpart, the receiver. The sender then keeps 10-x, and the remaining money is tripled by the experimenter so that 3x is passed to

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the receiver. Any positive amount passed by the sender (0 < x) represents a willingness to engage in risky behavior that is not bound by a contract, with the underlying assumption that this risky behavior must necessarily be a result of some positive expectation of the counterpart’s intentions

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(Berg et al., 1995; Camerer, 2001; Malhotra and Murnighan, 2002). In stage two, the receiver may either pass nothing, or any portion y of the money received (0  y  3x+10) back to the

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sender. We also use this game to examine the degree of trustworthiness the receivers are willing to engage in by examining the amount the receiver returned to the sender.2

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Our version of this strategic interaction replicates Berg, Dickhaut, and McCabe’s intricate

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double-blind protocol to ensure that neither the experimenter nor the subjects can trace decisions back to a particular person. Both subjects are endowed with $10, just as in the original study, in

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order to avoid behavior motivated simply by inequity aversion (Fehr & Schmidt, 1999). We deviate from the original design by changing the amount by which the experimenter multiplies the money passed by the sender, the potential gains, to either 2 or 4. This manipulation allows us to test the effects of different incentives to trust through changes to potential gains from trusting. The receiver’s behavior in this game, that is the proportion they choose to send back to the sender, serves as a measure of ‘trustworthiness’ and while trustworthiness is not the focus of this study, we examine factors that predict the receiver’s behavior and an exploratory analysis at the end of the results section. 2

ACCEPTED MANUSCRIPT Motivating Trust 14 Since both the sender and the receiver are endowed with $10 at the start of the game, any amount sent by the sender is risk-taking (i.e., trust, Mayer, Davis, and Schoorman, 1995) because they will be left worse-off if the receiver does not return at least the original amount sent. Furthermore, because sending money creates an inequality between the players and generates an

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overall gain for the dyad, senders would form the expectation that some amount of money would be returned by the receiver as a means of reciprocating the sender’s decision to trust. This

reciprocity would result in gains and reinstate some form of equality. The elements of risk and expectation are key characteristics of trust (Mayer, Davis, and Schoorman, 1995; Rousseau et al.,

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1998).

3.1 Treatments

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Potential Gains. We adjust the potential gains from trust by assigning participants to a trust game interaction with a multiplier of either two or four. In the x2 condition, subjects are

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informed that the amount passed by the sender will be doubled by the experimenter, and in the x4 condition all subjects are told that the amount passed by the sender will be quadrupled. This is

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considered a manipulation of incentives to trust because the same level of trust produces greater

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gains to the receiver in the x4 condition than in the x2 condition, and results in more money for a trustworthy counterpart to pass back to the sender. In other words, all the senders engage in risk-

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taking behavior (i.e., trust) (Mayer, Davis, and Schoorman, 1995) when they send any amount of their endowment, but at the same level of trust (i.e., amount sent) the senders in the x4 condition have the potential to gain more from trust through a greater overall pool of money, if their counterpart is trustworthy.

ACCEPTED MANUSCRIPT Motivating Trust 15 Emotion. We use short commercial film clips as well as a relived memory exercise to elicit either happy or virtually no incidental emotions in participants. The film selections were based on prior work in Fredrickson’s laboratory, which has used these clips to elicit the same emotions successfully in their research (Fredrickson and Branigan, 2005). Happiness was

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induced using the film clip “Penguins” (2min 6 sec), which shows groups of penguins waddling, swimming, and jumping. To enhance the effect of the happy manipulation we added a ‘relived experience’ questionnaire (Lerner and Keltner, 2001) which evoked happiness by asking subjects to recall and write about a time in their life when they were ‘happy, exhilarated, joyful or

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euphoric’. To elicit a neutral emotion, we chose the video “Sticks” (2min 33sec) that shows an abstract display of colored sticks piling up and elicits virtually no emotion.3

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4. Methods 4.1 Participants

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Two-hundred and twenty-eight undergraduate students (114 sender-receiver dyads) enrolled in introductory-level business courses participated in this study. Fifty-seven percent of

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the participants were male and an average of 21.6 years old. Eighty-eight percent of the

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participants reported being native to the United States. 4.2 Measures

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The decision to trust is coded as 1 if the sender chooses to pass a positive amount and 0 if the sender chooses to send nothing. The level or degree of trust the subject demonstrates toward their counterpart is measured as the amount of money the sender passes to his or her counterpart. Thus, the decision to trust captures whether participants are motivated to trust at all, while the

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We omitted the neutral relived memory exercise because the pilot test revealed that rather than elicit a neutral baseline emotion state, the questionnaire evoked calm and joyful emotions.

ACCEPTED MANUSCRIPT Motivating Trust 16 degree of trust captures how much they trust. Differentiating these two constructs allows us to investigate factors that could potentially serve as a catalyst to engage in trust behaviors as well as factors that affect the degree of trust. We also examine the receiver’s decision to pass money back, and the amount they pass back, as indicators of trustworthiness. Finally, we include a post-

subjects to describe the motivation behind their decision. 4.3 Procedure

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questionnaire with general demographic information as well as an open-ended question asking

Groups of participants (n = 10-14) arrived at the laboratory at scheduled intervals and

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were randomly assigned to one of two adjacent rooms (A and B) with isolated cubicles. We used two rooms in order to promote confidentiality and anonymity, thus minimizing participant concerns that the participants might guess or know who they are assigned to, and to remove the

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potential for any communication. Participants assigned to room A were assigned the sender’s role in the trust game, and were also randomly assigned to an emotion condition and a potential

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gains condition. Participants assigned to room B were ‘receivers’ in the trust game and were assigned to the neutral emotion condition (since we were only examining the effect of emotion

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on trust). The multiplier condition for room B participants matched that of their randomly

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assigned counterpart in room A. Three experimenters participated in each session: one assigned to room A, one to room B, and a third to private space in the entrance hallway where they

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recorded and multiplied the dollars sent by the participants. Once all participants arrived, the doors to the rooms were closed and the experiment began. We implemented a double blind procedure as in the original trust game. The anonymity

of all participants’ decisions was preserved to other participants as well as the experimenters. Neither the experimenter from room A nor room B was present when the envelopes were

ACCEPTED MANUSCRIPT Motivating Trust 17 opened. The room A and room B experimenters were not privy to each participant’s decision, and the third experimenter who opened the envelopes was privy to the decision but not the specific individual associated with a specific envelope (i.e., decision). Room A and room B participants were endowed with $10 (in one-dollar bills) as a

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“show-up fee.” In order to enhance participants’ psychological ownership of the money involved in the game, they were given their show-up fee in cash immediately upon arrival. Next, the experimenters distributed and read out loud the instructions to the trust game, which were

identical for both rooms. After reviewing the instructions, all subjects viewed a short video clip

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on the laptop in their isolated cubicles and then completed an emotion report manipulation

check. Participants assigned to the happy condition completed the relived memory exercise before they responded to the manipulation check.

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Next, the senders made a decision about whether to pass some portion, all, or none of their show-up fee to a matched receiver counterpart. The amount they decided to pass was placed

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into a coded blue envelope. Once all participants finished transferring the amounts into their envelopes, they sealed the flaps and placed their envelopes into a large closed box with a small

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slot opening. The closed box was then given to the experimenter in the hallway who opened the

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envelopes and recorded the amounts sent. This experimenter also noted the code on the envelope (which designated the condition as well as a unique subject identifier), and multiplied the money

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in the envelope by the appropriate multiplier (two or four, based on the randomly assigned condition). Neither the experimenter from room A nor room B was present when the envelopes were opened.

The multiplied amounts (i.e., dollars) were placed into the appropriate blue envelopes, the blue envelopes were returned to the box, and then delivered to the room B experimenter who

ACCEPTED MANUSCRIPT Motivating Trust 18 delivered them to the receivers. The receivers then decided whether to send some portion, all, or none of their total dollars ($10 show-up fee plus the multiplied amount) to the sender counterpart. Finally, the receivers placed the amount they decided to pass back to the senders into the blue envelope and kept the remainder of the money. Envelopes were again collected in

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the box and passed to the experimenter in the hallway, who recorded the amounts the receivers passed back and returned the envelopes to room A. The envelopes were returned to the original senders. All participants kept for themselves any money they received from the experiment. After all decisions were made and all envelopes were passed back, participants completed

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the post-questionnaire. The participants were then debriefed and dismissed one-by-one in order to ensure their anonymity and privacy upon departure.

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5. Results

Emotions experienced during the film clip were measured using a one-page self-report

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Emotion Report Form that was adapted from Ekman, Friesen, and Ancoli (1980). The measure asks subjects to describe, on a 9-point response scale, how much of each emotion they felt while

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watching the film clip. The list of emotions included three items to represent happiness (joyful,

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happy, amused). All three emotions are relatively high-arousal positive emotions, which are often used interchangeably (Fredrickson and Branigan, 2001; Lazarus, 1991; Ruch, 1993). The

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scale reliability (alpha) for happiness was .90. We found that happiness experienced by the subjects in the happy video condition (M=4.10, SD=1.95) was significantly greater than the happiness experienced by subjects assigned to the neutral video condition (M=1.40, SD=1.56, p < 0.001). Our video manipulation therefore successfully induced the intended emotional states.

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Max

114 56 58 57 57

0.83 0.89 0.78 0.91 0.75

0.37 0.31 0.42 0.29 0.43

0 0 0 0 0

1 1 1 1 1

114 56 58 57 57

$4.68 $5.68 $3.72 $5.05 $4.32

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Min

$3.66 $3.70 $3.39 $3.45 $3.86

0 0 0 0 0

10 10 10 10 10

114 57 57

0.77 0.68 0.86

0.42 0.35 0.47

0 0 0

1 1 1

114 57 57

$8.06 $10.51 $5.61

$7.83 $8.65 $6.06

0 0 0

25 25 20

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5.1 Predicting Trust

Std. Dev.

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Table 1: Descriptive Statistics

Mean

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Trustworthiness Decision – proportion of receivers returning positive amount x4 multiplier x2 multiplier Trustworthiness Degree – amount returned to sender x4 multiplier x2 multiplier

N

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Variable Trust Decision – proportion of senders who passed a positive amount Happy Neutral x4 multiplier x2 multiplier Trust Degree - amount passed by senders to receivers Happy Neutral x4 multiplier x2 multiplier

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Descriptive statistics. Table 1 contains the descriptive statistics on key variables. Ninetyfive of the 114 subjects (83%) assigned to the sender role engaged in trust behavior and passed a

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positive amount to their randomly assigned, anonymous receiver-counterparts in room B. The average amount passed was $4.68, and the average amount returned by receivers was $8.06. Senders assigned to the happy emotion condition were more likely to pass money to their counterpart (MHappy=.89, SD=0.31, MNeutral=.78, SD=.42; χ2 = 2.81, p = .09) and senders in the x4 potential gains were significantly more likely to pass money to their counterpart than those in the

ACCEPTED MANUSCRIPT Motivating Trust 20 Model 1

Emotion Multiplier Emotion x multiplier Constant Pseudo R2 Wald 2

Coeff.

SE

Coeff.

0.920 0.567 1.251 0.588

**

0.724 0.397 0.081 5.24 *

**

**

SE

1.628 0.724 2.110 0.830 -2.110 1.201 0.492 0.384 0.112 11.00 **

** ***

** *

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Independent Variable

Model 2

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Table 2: Logistic Regressions Predicting Decision to Trust (Huber-White robust standard errors where *** /** /* indicates one-tailed significance at 1% /5% /10% level) x2 condition (Mx2=.75, SD=.43; Mx4=.91, SD=.29; χ2 = 5.12, p = .02). 4 Senders assigned to the happy emotion condition also passed significantly more than senders in the neutral emotion

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condition (Ms of 5.68 and 3.72; SDs of 3.70 and 3.39 respectively; t(112)=2.94, p< .01)5. Senders in the x4 potential gains condition did not pass significantly more money than those in

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the x2 condition (Ms of 5.05 vs. 4.32; SDs of 3.45 and 3.86, respectively; t(112)=1.07, n.s.). Predicting the decision to trust. We estimate a logistic regression to predict the likelihood

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that a sender will pass money to the counterpart – whether someone will trust. Table 2 (Model 1)

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displays the results. The emotion state (1=happy video and 0=neutral video) and multiplier manipulations (1=experimenter quadruples amount sent and 0=experimenter doubles amount

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sent) are both significant predictors of the decision to trust. Subjects who watched the ‘happy’ video before making the decision, and subjects assigned to the x4 multiplier condition were more likely to trust their counterpart. Hypotheses 1a and 2a were supported.

4

Note that we do not examine the effect of the emotion manipulation on trustworthiness behavior since the receivers in the trust game were not exposed to the emotion treatment – they all received the control emotion treatment. 5 T-test results here and below were verified using Fligner and Policello’s robust rank order test.

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1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0

0.93 0.89 0.89 0.62

Emotion Neutral Emotion Happy

2

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Likelihood to Trust

Motivating Trust 21

4

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Multiplier

Figure 1: Decision to Trust: Simple Slope Effects for Emotion and Multiplier

When participants experienced incidental happiness or had higher potential gains, they

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were more likely to pass a positive amount to their anonymous counterpart. We now examine the interaction of these two effects on the decision to trust. Table 2 provides results for our

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hypotheses predicting main effects of happiness and greater potential gains on the decision to

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trust, and our predicted interaction effect. Model 2 indicates that the interaction of emotion and potential gain is significant, providing support for hypothesis 3a. Subjects in a neutral mood tend

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to trust when there are greater potential gains from trust, while subjects in a happy mood are not motivated further by the financial incentives (see Figure 1).

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Responses to the open-ended questions provide additional insights into the motivation of

subjects across the conditions. For example, responses from subjects in the happy condition tended to focus less on maximizing individual gains and more on fairness and the well-being of the unknown counterpart. One subject in the happy condition explained that they sent the entire $10 to their counterpart “b/c maybe they’ll be fair and send back $15. If not, it doesn't change

ACCEPTED MANUSCRIPT Motivating Trust 22 Model 1

Sender’s emotion Multiplier Sender’s emotion x multiplier Constant Adjusted R2 F

Coeff.

SE

Coeff.

1.954 0.665 0.737 0.663

***

3.336 0.558 0.065 4.96 ***

***

SE

2.819 0.961 1.586 0.872

*** *

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Independent Variable

Model 2

-1.729 1.326 2.931 0.632 0.071 3.89 **

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Table 3: OLS Regressions Predicting Degree of Trust (Huber-White robust standard errors where *** /** /* indicates one-tailed significance at 1% /5% /10% level)

my life, and I’m happy someone got $30.” In the neutral condition, the focus was more on individual well-being and lack of trust. One subject in the neutral, x2 condition explained, “I

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don’t send any money because I don't know who will receive it or if I would get any back if I did

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send it.” Another explained, “I don't know the person so I don't trust him to send me anything back.” In the neutral x4 condition, in contrast, the focus was more on the potential gains if the

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counterpart proved to be trustworthy. Subjects justified their decision to send money to their counterpart, “in hopes of seeing a large return.” Another subject who sent $8 explained, “I

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invested a large portion in the hope of gaining more.” For those in a neutral mood, increasing the potential gains from trusting clearly shifted the incentives to trust.

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Predicting the degree of trust. Next we examine whether the same factors predict ‘how

much’ people are willing to trust their counterparts. This dependent variable is operationalized as the amount passed from the senders to their counterparts. Table 3 (Model 1) presents an OLS regression predicting the amount passed - degree of trust. We examine the same variables as above and find that subjects in a happy mood pass more money to their counterparts, providing

ACCEPTED MANUSCRIPT Motivating Trust 23 support for Hypothesis 2b. We do not, however, find a main effect that the potential gains multiplier is a significant predictor of the amount sent, thus Hypothesis 1b was not supported. Emotion also did not significantly interact with potential gains on the degree of trust (see Model 2), and thus the hypothesis was not supported. However, a closer look at the relationship between

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the degree of trust and potential gains in only the neutral mood treatment reveals that participants sent less money when potential gains were lower (Mx2=2.93, SD=3.40) than when they were higher (Mx4=4.52, SD=3.24 (t(56) = 1.82, p = .07, p one-tailed < .05)), while potential gains did not impact the amount sent by participants in the happy treatment (Mx2=5.75, SD=3.84 and

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Mx4=5.61, SD=3.63, t(54)=0.14, p=n.s.).6 Thus, even though the interaction is not significant, contrary to the expectations of H3b, potential gains did make a difference in the neutral

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condition, but not in the happy treatment.

5.2 Trustworthiness

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The receiver’s decision to pass money back to the counterpart and the proportion of this money that the receiver chooses to pass back to the sender represent behavioral measures of

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trustworthiness. One question that is frequently raised in reference to these anonymous trust

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exchanges is whether the trusting behavior of the sender is strictly rational – that is, whether engaging in trusting behavior does in fact produce higher payoffs than not trusting. In the

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original Berg, Dickhaut, and McCabe (1995) trust game, trust did not pay since senders on average received back only 90% of the amount passed to the trusted party (Msent=$5.16, Mreturned=$4.66) (1995). Recent surveys of behavioral trust outcomes also indicated that trust behavior has generally not paid off (Camerer, 2003; Johnson and Mislin, 2011). In our study, 6

A non-parametric test of these differences further supports this result. Fligner and Policello’s robust rank order test statistic comparing the multipliers for the neutral condition u=2.228, p=0.03 is significant, while the test statistic comparing the multipliers in the happy condition, u=0.040, p=.97 is not significant.

ACCEPTED MANUSCRIPT Motivating Trust 24 Model 1

Amount Sender passed to Receiver Multiplier Amount Sender passed X Multiplier Constant Adjusted R2 F(2, 111 )

Coeff.

SE

Coeff.

1.718 0.104 3.629 0.762

***

-1.800 0.700 0.73 156.13 ***

***

***

SE

1.339 0.124 -0.401 0.835

***

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Independent Variable

Model 2

0.853 0.216 -0.164 0.500 0.78 96.10 ***

*** ***

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Table 4: OLS Regressions Predicting Trustworthiness Degree (Huber-White robust standard errors where *** /** /* indicates significance at 1% /5% /10% level)

however, we found that on average, trusting did pay off. In particular, senders received back on

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average 172% of the amount passed to the trusted party. This may have been helped by the fact that we endowed both participants equally with $10, so that the receiver would not attribute the

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amount passed to them as a result of inequity aversion (Fehr & Schmidt, 1999). In addition, we examine whether a greater return on trust (our potential gains treatment)

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also motivates increased displays of trustworthiness. Table 4 reports the OLS estimation we use

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to examine whether the amount passed by the sender and the potential gains treatment predict the degree of trustworthiness behavior. Results indicate that greater trust behavior is reciprocated

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with greater trustworthiness. Trust is also rewarded in conditions of munificence characterized by the higher potential gains treatment. Trustworthiness behavior is also motivated by the benefits an individual incurs from the trust behavior – benefits not necessarily resulting from how much their counterpart trusted them, but benefits resulting from exogenous incidental factors (potential gains) defining the exchange. A significant coefficient on the interaction term (amount sender passed x potential gains) indicates that the potential gains treatment only begins

ACCEPTED MANUSCRIPT Motivating Trust 25 to impact the degree of trustworthiness when the sender passes a greater amount of money. That is, trust is reciprocated with greater trustworthiness behavior in the higher potential gains treatment only when greater levels of trust are exhibited in the first place.

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6. Discussion

This study focused on decisions to trust strangers and demonstrated that first movers are sensitive to incentives embedded in the exchange context as well as the individual’s emotion state. The results from our experiment indicate that both happiness and potential gains positively

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affect the likelihood that an individual is willing to initiate a trust-based interaction by sending some positive amount of money to a counterpart. Furthermore, these factors do interact to predict trust such that individuals in a neutral mood are more likely to trust when there is potential for

are in a happy emotion state.

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greater gain. Incentives through higher potential gains do not motivate trust when individuals

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We find that happiness and potential gains do not necessarily have the same effect on the degree of trust individuals extend. Potential gain has no effect on the degree of trust, suggesting

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that trying to elicit trust through potential rewards may have limited effect on trust development.

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We also find that potential gain does not interact with happiness to influence the amount of money individuals send to their counterparts. Happiness, on the other hand, does affect the

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degree of trust individuals are willing to extend. People in a happy mood are not only more likely to trust an unknown counterpart, but they are also likely to demonstrate a greater degree of trust toward that counterpart as compared to the neutral mood. We suggest that the potential for gain is inherent to trust situations and acts as a catalyst for trust. It presents the opportunity for individuals to move from the willingness to trust to

ACCEPTED MANUSCRIPT Motivating Trust 26 actually engaging in trust behaviors. Once they decide to participate in a trust-based interaction they must then ask, “To what extent will I trust in this situation?” Our findings indicate that potential gain does not influence the answer to this question, but emotion does. Further, our

the findings with inequity aversion (Fehr and Schmidt, 1999).

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findings are strengthened through our design; by endowing both parties we avoided confounding

Positive emotions can promote cooperation (Forgas, 1998), generosity (e.g., Isen, 1970; Isen and Levin, 1972), and also, based on this research, the act of trusting strangers. Beyond that, our study showed that subjects experiencing happy moods before the exchange were not

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motivated by the potential gains incentive. We attribute this to increased reliance on heuristics resulting from the positive mood (Park and Banaji, 2000). While modifications to the potential gains had the effect to substantially increase the likelihood of a trust decision, this was only true

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for those parties in a neutral mood. Incentives through higher potential gains appear sensitive to

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mood.

6.1 Limitations and Future Research

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The findings from our research also raise a number of questions for future research. For example, while our study was limited to a one-shot exchange, it would be interesting to

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investigate the effects of these interactions over time. Previous experiences are likely to inform subsequent behavior. The effects of our treatments might differ for second encounters –

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participants exposed after a short break to the same treatments might not be motivated to trust more a second time. Since emotions are short-lived (Forgas & George, 2001), how might individuals engage in sensemaking about trust decisions once their positive emotion has returned to baseline levels? Similarly, the allure of greater returns might also fade after time. Would a pecuniary incentive become less salient over time and if so, would its effects on trust be

ACCEPTED MANUSCRIPT Motivating Trust 27 reduced? These questions may be interesting to examine in future research that considers the impact of mood and potential gains in repeated interactions and after a time delay.7 Furthermore, the controls implemented in the experiment came at a cost of an anonymous exchange setting with an exogenous emotion manipulation followed by a trust decision. An

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actual exchange setting may contain other important parameters that could interact with the effects of emotions and incentives to influence trust. There is an opportunity for future research to examine whether these effects also hold for trust decisions that are not anonymous. Dunn and Schweitzer’s research (2005) suggests that positive emotions are less likely to promote trust in

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contexts where the parties know each other well, but might the emotion still work to limit the motivating properties of other incentives employed in such a context? Indeed, related research finds that an increase in Oxytocin results in increased perception of others’ trustworthiness (Zak,

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Kurzban and Matzner, 2005) and that perceptions of trustworthiness can be motivated through empathy (Zak, 2010). It would also be interesting to examine how emotions that emerge from an

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exchange context, rather than exogenously imposed emotions, would influence trust decisions. While this study focused on positive emotions, future research may also investigate

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similar implications of specific negative emotions. Negative emotions tend to narrow thoughts

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and actions, and in certain work environments can enhance performance and focus (Lazarus, 1991; Levenson, 1994; Tooby and Cosmides, 1990). This study raises the question of how

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anger, fear, and what have been called ‘social emotions’ such as guilt, shame, and envy, might interact with different organizational choices and influence cooperation and trust behavior. For example, it could be that as stakes increase, greater potential gains from trusting might activate higher levels of anxiety and fear of being cheated. Fear is associated with a tendency to be more

7

We would like to thank an anonymous reviewer for these insights for future research.

ACCEPTED MANUSCRIPT Motivating Trust 28 risk averse (Lerner & Keltner, 2001) and might it turn suppress trust behavior. We encourage future research to explore these potential relationships. This study also points to the need for refining our understanding of the factors that influence the decision to trust versus those that influence the degree of trust. This is important

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because trust building is based on a series of cooperative moves (Blau, 1964; Ferrin, Bligh, and Kohles, 2007), and the first move signals to a counterpart whether an individual wants to initiate or forgo a relationship. Investigating the conditions under which these findings hold would

increase the understanding of boundary conditions of when individuals will trust as well as how

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levels of trust might be developed. For example, according to the theory of reasoned action

(Ajzen and Fishbein, 1977), expectations of others would be considered attitudes, which lead to behavioral intentions and then behaviors. What other attitudes affect positive expectations related

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to trust that are not acted upon?

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6.2 Conclusion

The decision to trust an unknown party is a pivotal gesture that is valuable to business as

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well as economic development. Incentives through higher potential gains lead to an increased

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tendency to trust and thus present a promising avenue for promoting trust. But the effects of positive emotions on trust behavior must not be overlooked. Mood manipulations may pose a far

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less costly and more effective method for motivating both an increased tendency to trust as well as a higher degree of trust between strangers.

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