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Risk mitigation and trust: Experimental Evidence from Jordan and the United States |
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| Institution: | 1. The American University in Cairo, AUC Avenue, P.O. 74, New Cairo 11835, Egypt;2. Harvard Kennedy School, 79 JFK Street, Cambridge, MA 02138, United States;1. National School of Development, Peking University, 100871 Beijing, China;2. Department of Economics, University of Gothenburg, Box 640, 405 30 Gothenburg, Sweden;1. Department of Economics, Monash University, Wellington Road, Clayton, VIC 3800, Australia;2. Seminar for Corporate Development and Business Ethics, University of Cologne, Universitätsstraße 22a, 50923 Köln, Germany |
| Abstract: | This paper examines how trust and trustworthiness respond to lowering the principal’s risk in cultural settings focused on risk mitigation vs. risk prevention. We employ a binary-choice trust game and show that principals are confronted with a complex optimization problem: risk mitigation lowers the principal’s cost of betrayal but if agents are inequality averse or reciprocally minded, it can also increase its likelihood. This may be exacerbated in cultures not used to fostering trust by risk mitigation. Our experiments suggest that lowering risk only increases trust in the United States but not in Jordan. In both countries, trustworthiness decreases as the principal’s vulnerability decreases. We extend our findings to naturally occurring vulnerabilities in addition to the financial ones created in the laboratory. |
| Keywords: | Trust Reciprocity Social preferences Gender Risk mitigation Vulnerability Cross-cultural experiments |
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