The dynamic interplay of inequality and trust—An experimental study

We study the interplay of inequality and trust in a dynamic growth game, in which trust increases efficiency and thus allows higher growth of the laboratory economy in the future. We find that trust (as measured by the percentage of wealth invested in a trust game) is initially high in a treatment starting with equal endowments, but decreases over time. In a treatment with unequal endowments, trust is initially lower yet more robust. The disparity of wealth distributions across economies mitigates over time. Our findings suggest that both the level and the (exogenous or endogenous) source of inequality matters for the dynamics of trust.

► We experimentally study the dynamic interplay of inequality and trust in a new growth game. ► In economies with equal endowments, trust and trustworthiness depend on wealth comparisons. ► Trust declines under equal endowments, but remains largely stable under unequal endowments. ► The disparity of wealth distributions across economies mitigates over time. ► The source of inequality plays an important role for the dynamics of trust.