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Social exposure and trustworthiness: Experimental evidence
Economics Letters 162 (2018) 73–75
Contents lists available at ScienceDirect
Economics Letters journal homepage: www.elsevier.com/locate/ecolet
Social exposure and trustworthiness: Experimental evidence Wei Bao a , Yulei Rao a , Jianxin Wang a, *, Daniel Houser b a b
Business School, Central South University, China Interdisciplinary Center for Economic Science, George Mason University, United States
highlights • We use laboratory experiments to study how social exposure affects decisions. • In a trust game, some trustees’ decisions are revealed to their roommates. • Even weak social exposure of one’s decisions has a strong effect on behavior.
article
info
Article history: Received 19 July 2017 Received in revised form 6 October 2017 Accepted 20 October 2017 Available online 4 November 2017
a b s t r a c t A large number of empirical studies have investigated the value of exposing one’s decisions to social networks in increasing trustworthy behavior, but these suffer from several limitations. This paper reports data from a controlled laboratory experiment that demonstrates even minimal social exposure dramatically increases trustworthy behavior. © 2017 Elsevier B.V. All rights reserved.
JEL classification: C91 C71 D91 Keywords: Social exposure Trustworthiness Experimental design
1. Introduction The role of exposure to a social network in promoting trustworthy behavior has received substantial recent attention in many lending institutions, especially in microfinance where relying on it to improve repayment rates. Despite the popularity in assessing the value of this arrangement,1 whether this works remains an open question. For example, the causal effect of social exposure in naturally occurring environments typically includes endogeneity concerns (Hermes and Lensink, 2007). The purpose with this paper is to shed rigorous light on this topic using a controlled laboratory environment, where we can explicitly study the effect of exposure to social networks on repayment behavior. Our theoretical framework is based on Houser et al. (2016), where an action can affect individuals’ utility through two channels: wealth and non-pecuniary moral costs or benefits. Individuals author. * Corresponding E-mail addresses: [email protected] (W. Bao), [email protected] (Y. Rao), [email protected] (J. Wang), [email protected] (D. Houser). 1 See Karlan (2007), Paxton et al. (2000). https://doi.org/10.1016/j.econlet.2017.10.017 0165-1765/© 2017 Elsevier B.V. All rights reserved.
incur a moral cost for dishonest behavior, and the effect of social exposure will further increase these costs. This is the reason people hypothesize that trustworthy behavior, such as repayments in micro-finance, will be more likely under social exposure. Our experiment design is a variant of the ‘‘hidden-action’’ trust game (Charness and Dufwenberg, 2010, 2006; which builds on Berg et al., 1995, among others). Trustees can send promises to investors. In some treatments, we reveal the trustees’ defect or cooperate decisions to one of their roommates, using the WeChat social networking phone app.2 This creates minimal social exposure of trustees’ promise-making and promise-keeping behaviors. Despite social exposure being quite limited, we find that it has remarkably strong effects. As compared to a baseline without it, social exposure improves repayment rates by 15%, a quantity that is both economically and statistically significant. Further, economic efficiency increases by about 20%. These findings provide support for institutional designs that underlie many contemporary development practices, and suggest 2 Wechat is an instant messaging tool with over 800 million Chinese users.
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W. Bao et al. / Economics Letters 162 (2018) 73–75
the importance of designing new institutions to take advantage of this effect. 2. Social exposure and promise keeping Our experiment is not designed to determine the mechanism underlying social exposure’s potential ability to improve promisekeeping behavior. Nevertheless, it is worth mentioning three possible channels. One is social image (Benabou and Tirole, 2006; Ellingsen and Johannesson, 2008). The idea here is that people care about how they themselves or others perceive them. A second channel is that social exposure increases the salience of the promise-keeping norm, thus inducing higher moral costs to promise breaking (Xiao, 2017; Xiao and Houser, 2011). A third channel is guilt aversion. Because trustees know that the investors know that the trustees will face social exposure, the trustees may believe that the investors are more likely to expect a return. If so, then trustees may feel more guilt as a result of breaking a promise (Charness and Dufwenberg, 2006), and thus be more likely to keep their promise.
and send it to their roommate3 via Wechat. Our intent was for B to face minimal social exposure of their promise keeping behavior.4 Trustees chose roommates to receive the screenshots prior to the description of the game. Specifically, we asked each subject to answer a demographic survey before delivering the game’s instructions. Within the survey, participants were asked to provide information, such as age, gender, religion and other information. Further, all subjects were required to provide a roommates’ Wechat contact information. Prior to paying Bs their experiment earnings, we confirmed that they had correctly followed instructions regarding sending the text message and the screen-shot at the times that they were told to do so.5 Any who did not follow the rules received only a ¥5 show-up fee. 3.3. Control treatment The control was identical to the above, except that the picture of their screen, which they were still asked to take, was not sent to anyone. 3.4. Procedures
3. Experiment design and procedures We design an experiment to test the hypothesis that trustees facing social exposure will be more likely to keep their promise than those who do not (see Appendix for instructions). Our experiment consisted of two treatments: Social Exposure and Control. Within each treatment, subjects played a trust game where, following Charness and Dufwenberg (2010), trustees indicated to investors, using a check-box, whether they ‘‘promised’’ to reciprocate. We varied whether outcomes of the game could be observed by a third party, as described below. 3.1. The trust game All subjects were randomly assigned to the role of either Player A or B. The role was fixed during the experiment. Each A was randomly matched with a B. Subjects were informed that they would never know the identity of the person with whom they were matched. The trust game proceeds as follows: A first decided to choose In or Out and then B chose to Roll or Don’t Roll a six-sided die. After that, the computer would randomly roll a six-sided die for each B regardless of B’s choice, and this outcome was only revealed to B. The game was played using the strategic method, meaning B did not know A’s choice when making their decision. As in Charness and Dufwenberg (2010), B’s choice was relevant only when A chose In. The outcomes and corresponding payoffs were described to the participants in Table 1: Prior to the decision by A concerning In or Out, B was provided with an option to make a promise. Specifically, B chose one of two message options: ‘‘I promise to choose Roll’’ or a blank message. The chosen message would be sent to B’s paired A. 3.2. Social exposure treatment In this treatment, B’s behavior in the game was ‘‘scrutinized’’ by a third party. After the trust game, we provided B with a message on his/her computer screen. The message stated: (1) whether B made a promise before the game; (2) If B made a promise, whether B kept his/her words during the game; (3) the earnings of B and A in this game. Then, B was asked to take a picture of this message
We conducted the experiment at Central South University (CSU), using z-Tree (Fischbacher, 2007). Subjects were undergraduates. Each subject provided their student ID, name and Wechat contact. Participants were required to have a Wechat account and a phone. Participants left their phones with the experimenter until needed for taking pictures and sending texts. Each subject participated in one treatment. The experiment lasted one hour. 4. Results We ran 12 sessions for each treatment and obtained 199 observation pairs: 104 for Control and 95 for Social Exposure. Only 6 out of 104 Bs (5.77%) chose not to promise in Control while in Social Exposure, only 4 out of 95 Bs (4.21%) chose not to promise. As our interest is in B’s promise-keeping behavior, we compare behaviors following a promise across treatments. This case includes 98 observations for Control and 91 for Social Exposure. Fig. 1 reports the details of the comparison between treatments. It shows that the rate of Roll is higher in Social Exposure than Control. In particular, the Roll rate in Social Exposure treatment is increased by 15.15% as compared to Control treatment, and this is statistically significant (p = 0.02, two-tailed t-test). We observe no significant effect on trust (In) rates between treatments (p = 0.17, two-tailed t-test). The rate of efficient outcomes, In and Roll, is significantly higher in Social Exposure treatment than in Control treatment. Efficiency is 74.73% in Social Exposure treatment while in Control treatment it is 55.10%. The difference is roughly 20 percentage points, and is significant on a two-tailed t-test (p < 0.01). We conduct a logit regression analysis of B’s rolling decision. The dependent variable is whether B chose to Roll in the trust game. The independent variable is Treatment dummy where ‘‘1’’ denotes Social Exposure treatment and ‘‘0’’ denotes Control treatment. Other control variables include demographics. Table 2 describes the results, where the coefficients are marginal effects. The coefficient of Treatment is positive and statistically significant in all 3 In China roommates always share the same gender. This supports our minimal social exposure paradigm because people are less sensitive to scrutiny by same gendered people (Henry and Sonntag, 2015). 4 Each B sent a message to the roommate before sending a picture, in order to clarify the context of the screenshot. 5 We confirmed that the sent messages could not be withdrawn.
W. Bao et al. / Economics Letters 162 (2018) 73–75
75
Fig. 1. Proportion of behavior in trust game by treatments. Error bars indicate 1 SE. Table 1 Participants’ choice and corresponding payoffs. A chooses Out
A chooses In B chooses Don’t Roll
A receives B receives
¥15 ¥15
¥0 ¥52
B chooses Roll (Die = 1)
(Die = 2–6)
¥0 ¥30
¥36 ¥30
Table 2 Logit regression for promise-keeping behaviors.
Treatment Ln(Age) Male Ethnic Han Religion Personality Obs.
(1)
(2)
(3)
0.15** (0.06) – – – – – 189
0.15** (0.06) −0.19 (0.39) 0.06 (0.06) 0.02 (0.12) −0.13 (0.10) – 188
0.15** (0.06) −0.19 (0.38) 0.07 (0.06) 0.01 (0.12) −0.14 (0.10) Control 188
Note: The numbers in the parentheses are the standard errors. ** represents significance at the 5% level.
three regressions (p < 0.05), and suggest that social exposure increases promise-keeping by 15 percentage points.6 5. Conclusion This paper reported data from an experiment that used social networks to create minimal social exposure of one’s decisions, and examined the effect of this on trustworthiness. We found remarkably strong effects of minimal social exposure, lending support to many of the arguments made in the microfinance literature, and suggesting the importance of designing further institutions that take advantage of social exposure in a variety of economic contexts. We noted this study is limited in that it cannot shed light on the mechanisms underlying the social exposure effect. Possible explanations include that individuals might care about self-image or their image with friends; or guilt aversion or the prominence of the morally right option might also play a role. Further, one might conjecture that social exposure is connected to social pressure. Because we do not measure social pressure, our study is also silent on this. Our results raise many interesting questions, and profitable future research will take steps towards finding their answers.
6 We also conduct a logit regression for whole sample regardless of whether B promises. In this regression, after controlling promise dummy, our treatment effect is still significant at 5% level.
Acknowledgment This work was supported by National Natural Science Foundation of China (grant number: 71372063; 71673306; 71501193). Appendix A. Supplementary data Supplementary material related to this article can be found online at https://doi.org/10.1016/j.econlet.2017.10.017. References Benabou, R., Tirole, J., 2006. Incentives and prosocial behavior. Amer. Econ. Rev. 96, 1652–1678. Berg, J., Dickhaut, J., McCabe, K., 1995. Trust, reciprocity, and social history. Games Econ. Behav. 10, 122–142. Charness, G., Dufwenberg, M., 2006. Promises and partnership. Econometrica 74, 1579–1601. Charness, G., Dufwenberg, M., 2010. Bare promises: An experiment. Econ. Lett. 107, 281–283. Ellingsen, T., Johannesson, M., 2008. Pride and prejudice: The human side of incentive theory. Amer. Econ. Rev. 98, 990–1008. Fischbacher, U., 2007. Z-Tree: Zurich toolbox for ready-made economic experiments. Exp. Econ. 10, 171–178. Henry, E., Sonntag, J., Measuring image concern, Working paper, 2015. Hermes, N., Lensink, R., 2007. The empirics of microfinance: What do we know?. Econ. J. 117. Houser, D., List, J.A., Piovesan, M., Samek, A., Winter, J., 2016. Dishonesty: From parents to children. Eur. Econ. Rev. 82, 242–254. Karlan, D.S., 2007. Social connections and group banking. Econ. J. 117. Paxton, J., Graham, D., Thraen, C., 2000. Modeling group loan repayment behavior: New insights from Burkina Faso. Econ. Dev. Cult. Chang. 48, 639–655. Xiao, E., 2017. Justification and conformity. J. Econ. Behav. Organ. 136, 15–28. Xiao, E., Houser, D., 2011. Punish in public. J. Public Econ. 95, 1006–1017.
Contents lists available at ScienceDirect
Economics Letters journal homepage: www.elsevier.com/locate/ecolet
Social exposure and trustworthiness: Experimental evidence Wei Bao a , Yulei Rao a , Jianxin Wang a, *, Daniel Houser b a b
Business School, Central South University, China Interdisciplinary Center for Economic Science, George Mason University, United States
highlights • We use laboratory experiments to study how social exposure affects decisions. • In a trust game, some trustees’ decisions are revealed to their roommates. • Even weak social exposure of one’s decisions has a strong effect on behavior.
article
info
Article history: Received 19 July 2017 Received in revised form 6 October 2017 Accepted 20 October 2017 Available online 4 November 2017
a b s t r a c t A large number of empirical studies have investigated the value of exposing one’s decisions to social networks in increasing trustworthy behavior, but these suffer from several limitations. This paper reports data from a controlled laboratory experiment that demonstrates even minimal social exposure dramatically increases trustworthy behavior. © 2017 Elsevier B.V. All rights reserved.
JEL classification: C91 C71 D91 Keywords: Social exposure Trustworthiness Experimental design
1. Introduction The role of exposure to a social network in promoting trustworthy behavior has received substantial recent attention in many lending institutions, especially in microfinance where relying on it to improve repayment rates. Despite the popularity in assessing the value of this arrangement,1 whether this works remains an open question. For example, the causal effect of social exposure in naturally occurring environments typically includes endogeneity concerns (Hermes and Lensink, 2007). The purpose with this paper is to shed rigorous light on this topic using a controlled laboratory environment, where we can explicitly study the effect of exposure to social networks on repayment behavior. Our theoretical framework is based on Houser et al. (2016), where an action can affect individuals’ utility through two channels: wealth and non-pecuniary moral costs or benefits. Individuals author. * Corresponding E-mail addresses: [email protected] (W. Bao), [email protected] (Y. Rao), [email protected] (J. Wang), [email protected] (D. Houser). 1 See Karlan (2007), Paxton et al. (2000). https://doi.org/10.1016/j.econlet.2017.10.017 0165-1765/© 2017 Elsevier B.V. All rights reserved.
incur a moral cost for dishonest behavior, and the effect of social exposure will further increase these costs. This is the reason people hypothesize that trustworthy behavior, such as repayments in micro-finance, will be more likely under social exposure. Our experiment design is a variant of the ‘‘hidden-action’’ trust game (Charness and Dufwenberg, 2010, 2006; which builds on Berg et al., 1995, among others). Trustees can send promises to investors. In some treatments, we reveal the trustees’ defect or cooperate decisions to one of their roommates, using the WeChat social networking phone app.2 This creates minimal social exposure of trustees’ promise-making and promise-keeping behaviors. Despite social exposure being quite limited, we find that it has remarkably strong effects. As compared to a baseline without it, social exposure improves repayment rates by 15%, a quantity that is both economically and statistically significant. Further, economic efficiency increases by about 20%. These findings provide support for institutional designs that underlie many contemporary development practices, and suggest 2 Wechat is an instant messaging tool with over 800 million Chinese users.
74
W. Bao et al. / Economics Letters 162 (2018) 73–75
the importance of designing new institutions to take advantage of this effect. 2. Social exposure and promise keeping Our experiment is not designed to determine the mechanism underlying social exposure’s potential ability to improve promisekeeping behavior. Nevertheless, it is worth mentioning three possible channels. One is social image (Benabou and Tirole, 2006; Ellingsen and Johannesson, 2008). The idea here is that people care about how they themselves or others perceive them. A second channel is that social exposure increases the salience of the promise-keeping norm, thus inducing higher moral costs to promise breaking (Xiao, 2017; Xiao and Houser, 2011). A third channel is guilt aversion. Because trustees know that the investors know that the trustees will face social exposure, the trustees may believe that the investors are more likely to expect a return. If so, then trustees may feel more guilt as a result of breaking a promise (Charness and Dufwenberg, 2006), and thus be more likely to keep their promise.
and send it to their roommate3 via Wechat. Our intent was for B to face minimal social exposure of their promise keeping behavior.4 Trustees chose roommates to receive the screenshots prior to the description of the game. Specifically, we asked each subject to answer a demographic survey before delivering the game’s instructions. Within the survey, participants were asked to provide information, such as age, gender, religion and other information. Further, all subjects were required to provide a roommates’ Wechat contact information. Prior to paying Bs their experiment earnings, we confirmed that they had correctly followed instructions regarding sending the text message and the screen-shot at the times that they were told to do so.5 Any who did not follow the rules received only a ¥5 show-up fee. 3.3. Control treatment The control was identical to the above, except that the picture of their screen, which they were still asked to take, was not sent to anyone. 3.4. Procedures
3. Experiment design and procedures We design an experiment to test the hypothesis that trustees facing social exposure will be more likely to keep their promise than those who do not (see Appendix for instructions). Our experiment consisted of two treatments: Social Exposure and Control. Within each treatment, subjects played a trust game where, following Charness and Dufwenberg (2010), trustees indicated to investors, using a check-box, whether they ‘‘promised’’ to reciprocate. We varied whether outcomes of the game could be observed by a third party, as described below. 3.1. The trust game All subjects were randomly assigned to the role of either Player A or B. The role was fixed during the experiment. Each A was randomly matched with a B. Subjects were informed that they would never know the identity of the person with whom they were matched. The trust game proceeds as follows: A first decided to choose In or Out and then B chose to Roll or Don’t Roll a six-sided die. After that, the computer would randomly roll a six-sided die for each B regardless of B’s choice, and this outcome was only revealed to B. The game was played using the strategic method, meaning B did not know A’s choice when making their decision. As in Charness and Dufwenberg (2010), B’s choice was relevant only when A chose In. The outcomes and corresponding payoffs were described to the participants in Table 1: Prior to the decision by A concerning In or Out, B was provided with an option to make a promise. Specifically, B chose one of two message options: ‘‘I promise to choose Roll’’ or a blank message. The chosen message would be sent to B’s paired A. 3.2. Social exposure treatment In this treatment, B’s behavior in the game was ‘‘scrutinized’’ by a third party. After the trust game, we provided B with a message on his/her computer screen. The message stated: (1) whether B made a promise before the game; (2) If B made a promise, whether B kept his/her words during the game; (3) the earnings of B and A in this game. Then, B was asked to take a picture of this message
We conducted the experiment at Central South University (CSU), using z-Tree (Fischbacher, 2007). Subjects were undergraduates. Each subject provided their student ID, name and Wechat contact. Participants were required to have a Wechat account and a phone. Participants left their phones with the experimenter until needed for taking pictures and sending texts. Each subject participated in one treatment. The experiment lasted one hour. 4. Results We ran 12 sessions for each treatment and obtained 199 observation pairs: 104 for Control and 95 for Social Exposure. Only 6 out of 104 Bs (5.77%) chose not to promise in Control while in Social Exposure, only 4 out of 95 Bs (4.21%) chose not to promise. As our interest is in B’s promise-keeping behavior, we compare behaviors following a promise across treatments. This case includes 98 observations for Control and 91 for Social Exposure. Fig. 1 reports the details of the comparison between treatments. It shows that the rate of Roll is higher in Social Exposure than Control. In particular, the Roll rate in Social Exposure treatment is increased by 15.15% as compared to Control treatment, and this is statistically significant (p = 0.02, two-tailed t-test). We observe no significant effect on trust (In) rates between treatments (p = 0.17, two-tailed t-test). The rate of efficient outcomes, In and Roll, is significantly higher in Social Exposure treatment than in Control treatment. Efficiency is 74.73% in Social Exposure treatment while in Control treatment it is 55.10%. The difference is roughly 20 percentage points, and is significant on a two-tailed t-test (p < 0.01). We conduct a logit regression analysis of B’s rolling decision. The dependent variable is whether B chose to Roll in the trust game. The independent variable is Treatment dummy where ‘‘1’’ denotes Social Exposure treatment and ‘‘0’’ denotes Control treatment. Other control variables include demographics. Table 2 describes the results, where the coefficients are marginal effects. The coefficient of Treatment is positive and statistically significant in all 3 In China roommates always share the same gender. This supports our minimal social exposure paradigm because people are less sensitive to scrutiny by same gendered people (Henry and Sonntag, 2015). 4 Each B sent a message to the roommate before sending a picture, in order to clarify the context of the screenshot. 5 We confirmed that the sent messages could not be withdrawn.
W. Bao et al. / Economics Letters 162 (2018) 73–75
75
Fig. 1. Proportion of behavior in trust game by treatments. Error bars indicate 1 SE. Table 1 Participants’ choice and corresponding payoffs. A chooses Out
A chooses In B chooses Don’t Roll
A receives B receives
¥15 ¥15
¥0 ¥52
B chooses Roll (Die = 1)
(Die = 2–6)
¥0 ¥30
¥36 ¥30
Table 2 Logit regression for promise-keeping behaviors.
Treatment Ln(Age) Male Ethnic Han Religion Personality Obs.
(1)
(2)
(3)
0.15** (0.06) – – – – – 189
0.15** (0.06) −0.19 (0.39) 0.06 (0.06) 0.02 (0.12) −0.13 (0.10) – 188
0.15** (0.06) −0.19 (0.38) 0.07 (0.06) 0.01 (0.12) −0.14 (0.10) Control 188
Note: The numbers in the parentheses are the standard errors. ** represents significance at the 5% level.
three regressions (p < 0.05), and suggest that social exposure increases promise-keeping by 15 percentage points.6 5. Conclusion This paper reported data from an experiment that used social networks to create minimal social exposure of one’s decisions, and examined the effect of this on trustworthiness. We found remarkably strong effects of minimal social exposure, lending support to many of the arguments made in the microfinance literature, and suggesting the importance of designing further institutions that take advantage of social exposure in a variety of economic contexts. We noted this study is limited in that it cannot shed light on the mechanisms underlying the social exposure effect. Possible explanations include that individuals might care about self-image or their image with friends; or guilt aversion or the prominence of the morally right option might also play a role. Further, one might conjecture that social exposure is connected to social pressure. Because we do not measure social pressure, our study is also silent on this. Our results raise many interesting questions, and profitable future research will take steps towards finding their answers.
6 We also conduct a logit regression for whole sample regardless of whether B promises. In this regression, after controlling promise dummy, our treatment effect is still significant at 5% level.
Acknowledgment This work was supported by National Natural Science Foundation of China (grant number: 71372063; 71673306; 71501193). Appendix A. Supplementary data Supplementary material related to this article can be found online at https://doi.org/10.1016/j.econlet.2017.10.017. References Benabou, R., Tirole, J., 2006. Incentives and prosocial behavior. Amer. Econ. Rev. 96, 1652–1678. Berg, J., Dickhaut, J., McCabe, K., 1995. Trust, reciprocity, and social history. Games Econ. Behav. 10, 122–142. Charness, G., Dufwenberg, M., 2006. Promises and partnership. Econometrica 74, 1579–1601. Charness, G., Dufwenberg, M., 2010. Bare promises: An experiment. Econ. Lett. 107, 281–283. Ellingsen, T., Johannesson, M., 2008. Pride and prejudice: The human side of incentive theory. Amer. Econ. Rev. 98, 990–1008. Fischbacher, U., 2007. Z-Tree: Zurich toolbox for ready-made economic experiments. Exp. Econ. 10, 171–178. Henry, E., Sonntag, J., Measuring image concern, Working paper, 2015. Hermes, N., Lensink, R., 2007. The empirics of microfinance: What do we know?. Econ. J. 117. Houser, D., List, J.A., Piovesan, M., Samek, A., Winter, J., 2016. Dishonesty: From parents to children. Eur. Econ. Rev. 82, 242–254. Karlan, D.S., 2007. Social connections and group banking. Econ. J. 117. Paxton, J., Graham, D., Thraen, C., 2000. Modeling group loan repayment behavior: New insights from Burkina Faso. Econ. Dev. Cult. Chang. 48, 639–655. Xiao, E., 2017. Justification and conformity. J. Econ. Behav. Organ. 136, 15–28. Xiao, E., Houser, D., 2011. Punish in public. J. Public Econ. 95, 1006–1017.