Pillars of Trust: An Experimental Study on Reputation and Its Effects

This paper presents the results of laboratory experiments on the relevance of reputation for trust and cooperation in social interaction. We have extended a repeated investment game by adding new treatments where reputation is taken more explicitly into account than before. We then compared treatments where the investor and the trustee rate each other and treatments where the investor and the trustee were rated by a third party. The results showed that: (i) third party reputation positively affects cooperation by encapsulating trust; (ii) certain differences in the reputation mechanism can generate different cooperation outcomes. These results have interesting implications for the recent sociological debate on the normative pillars of markets.