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Public Choice

, Volume 163, Issue 1–2, pp 187–199 | Cite as

House money effects on trust and reciprocity

  • Daniel Houser
  • Erte Xiao
Article

Abstract

In a typical laboratory “Investment Game” experiment, participants’ endowments are provided by the experimenter; thus, the worst case for the investor is that she loses all of her “found” money. By contrast, in naturally occurring environments, investment decisions can often lead to a loss of one’s own money. This paper investigates whether “trust” found in one-shot anonymous laboratory interaction is robust to “own money” environments. Our results show that, consistent with previous investment game results, most investors send a positive amount, and most trustees return at least the transfer amount, regardless of whether the investors purchase or are gifted their endowment. However, investments are on average lower when participants use their own money, and the fraction of maximum investments (the most “risky” investment decision) is only half as large under “own money” as it is under gifted endowments. Our results explain why one should exercise caution in placing trust in any government’s ability to spend other people’s money prudently.

Keywords

House money Investment games Experiments 

Notes

Acknowledgments

We thank the editor Edward Lopez for valuable comments that improved this manuscript. We are grateful to Xiangdon Qin at Shanghai Jiaotong University for providing substantial assistance that facilitated our conducting these experiments.

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Copyright information

© Springer Science+Business Media New York 2014

Authors and Affiliations

  1. 1.Economics Department and Interdisciplinary Center for Economic ScienceGeorge Mason UniversityFairfaxUSA
  2. 2.Department of EconomicsMonash UniversityClaytonAustralia

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