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Why trust out-groups? The role of punishment under uncertainty

Author

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  • Pan, Xiaofei
  • Houser, Daniel
Abstract
We conducted a hidden-effort trust game, in which we assigned subjects to one of two groups. The groups, which were formed through two different group formation processes, included a “social” group that required sharing and exchange among its members, and a “non-social” group that did not. Once assigned, subjects participated in the game with members from both groups, either with or without the opportunity to punish a trustee who may have defected on them. We found that for investors in the non-social group, the opportunity to punish a trustee worked to promote trust, but only when the trustee was a member of the other group. For the social group, the opportunity to punish had no effect on the investors’ trust decisions, regardless of the trustee's group. We provide a theoretical framework to explain this asymmetric effect of punishment on trust. Our results suggest that groups with identities founded in sharing and exchange—a feature of globalized societies—may find it less necessary to engage in costly punishment. As a result, they may enjoy gains in economic efficiency.

Suggested Citation

  • Pan, Xiaofei & Houser, Daniel, 2019. "Why trust out-groups? The role of punishment under uncertainty," Journal of Economic Behavior & Organization, Elsevier, vol. 158(C), pages 236-254.
    • Handle: RePEc:eee:jeborg:v:158:y:2019:i:c:p:236-254
    DOI: 10.1016/j.jebo.2018.11.020
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    References listed on IDEAS

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    3. Cai, Meina & Caskey, Gregory W. & Cowen, Nick & Murtazashvili, Ilia & Murtazashvili, Jennifer Brick & Salahodjaev, Raufhon, 2022. "Individualism, economic freedom, and charitable giving," Journal of Economic Behavior & Organization, Elsevier, vol. 200(C), pages 868-884.

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    More about this item

    Keywords

    Group identity; Trust; Punishment; Belief; Uncertainty;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D6 - Microeconomics - - Welfare Economics

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