Harnessing the benefits of betrayal aversion

Recent research suggests that while betrayal aversion may have negative effects, the presence of betrayal-averse agents is beneficial in reducing trustees’ willingness to betray trust. In light of this, many common knowledge institutions may have adopted rules and features which mitigate the emotional disutility associated with betrayal aversion, while simultaneously maintaining the high levels of reciprocation brought about by the presence of betrayal-averse agents. Here we conduct a laboratory experiment that identifies one such feature common to many institutions successfully governing economic and social interaction: the option to avoid knowing painful details of failed economic exchange.

► We explore how naturally occurring economic institutions affect betrayal aversion.
► We observe increased trust when the Institution makes betrayal knowledge optional.
► Reciprocation rates do not decrease in the optional knowledge institution.
► The results demonstrate benefits of institutions that allow for transparency.