Trust and risk revisited

- We study trust as measured in the trust game.
- We design a risky trust game to elicit risk in the same social context as the trust game.
- We measure individual's lottery risk preferences too.
- Investment in the trust game are explained by behavior in the risky trust game.
- Individual's risk preferences are source dependent.

A trustor faces a risky choice in the trust game when he acts upon his belief regarding the chances of betrayal by the trustee. Despite intensive research there is no clear evidence for a link between lottery risk preferences and risk involved in trusting others. We argue that this is due to crucial differences between the risk measurements in the two settings. Trusting is giving up control to a human while lottery risk arises from a mechanistic randomization device. We propose a risky trust game that experimentally measures risk in the same context as the standard trust game, but nevertheless reduces the trust decision to objective risk. Our results show that transfers in the trust game can indeed be explained by individual risk attitudes elicited with the risky trust game, while lottery risk preferences have no explanatory power.