TU/e - 0ZM05/0EM15/0A Assignment 2

TU/e - 0ZM05/0EM15/0A150 2 Course aim knowledge about concepts in network theory, and being able to apply that knowledge

TU/e - 0ZM05/0EM15/0A150 3 The setup in some more detail Network theory and background - Introduction: what are they, why important … - Network properties (and a bit on trust) - Four basic network arguments - Kinds of network data (collection) - Personal networks - Business networks - Patent networks

TU/e - 0ZM05/0EM15/0A150 4 Trust A journey into social psychology, sociology and experimental economics

TU/e - 0ZM05/0EM15/0A150 5 Often, trust is a key ingredient of a tie - Alliance formation - Friendship formation - Knowledge sharing - Cooperative endeavours -...

TU/e - 0ZM05/0EM15/0A150 6 Trust Working definition: handing over the control of the situation to someone else, who can in principle choose to behave in an opportunistic way “the lubricant of society: it is what makes interaction run smoothly” Example: Robert Putnam’s “Bowling alone”

TU/e - 0ZM05/0EM15/0A150 Different trust flavors… Trust in a specific other Trust in a general other Trust in a brand / institution / society / politics / … Trust in competence or ability vs trust in preference “existential trust” Trust as a belief or trust as a behavior 7

TU/e - 0ZM05/0EM15/0A150 8 Our flavor: The Trust Game as the measurement vehicle

TU/e - 0ZM05/0EM15/0A150 9 Ego characteristics: trustors Gentle and cooperative individuals Blood donors, charity givers, etc Non-economists Religious people Males...  Effects tend to be relatively small, or at least not systematic Note: results differ somewhat depending on which kind of trust you are interested in.

TU/e - 0ZM05/0EM15/0A Alter characteristics: some are trusted more Appearance Nationality We tend to like individuals from some countries, not others.

TU/e - 0ZM05/0EM15/0A Alter characteristics: some are trusted more Appearance - we form subjective judgments easily but they are not related to actual behavior - we tend to trust: +pretty faces +average faces +faces with characteristics similar to our own

TU/e - 0ZM05/0EM15/0A Alter characteristics: some are trusted more Nationality

TU/e - 0ZM05/0EM15/0A Some results on trust between countries There are large differences between countries: some are trusted, some are not There is a large degree of consensus within countries about the extent to which they trust other countries Inter-country trust is symmetrical: the Dutch do not trust Italians much, and the Italians do not trust us much

TU/e - 0ZM05/0EM15/0A The effect of payoffs on behavior

TU/e - 0ZM05/0EM15/0A The Trust Game – general format PP ST RR S < P < R < T

TU/e - 0ZM05/0EM15/0A Trust Games: utility transformations PP ST RR

TU/e - 0ZM05/0EM15/0A The effect of payoffs on behavior Trustworthy behavior: temptation explains behavior well Trustful behavior: risk ( (35–5)/(75–5) ) explains behavior well, temptation ( (95–75)/(95–5) ) does not  People are less good at choosing their behavior in interdependent situations such as this one  Nevertheless: strong effects of the payoffs on trustful and trustworthy behavior

TU/e - 0ZM05/0EM15/0A150  Trust shows all the signs of what is generally called the “disposition effect” 18

TU/e - 0ZM05/0EM15/0A Example applications to alliance networks Take as given that firms (have to) trust each other. Then trust research suggests, for instance: It is not so much that firms themselves tend to differ "by nature" in the extent to which they trust each other. Dealing with overcoming opportunistic behavior might be difficult, given that people are relatively poor at using the other parties incentives to predict their behavior. Dealings between firms from countries with low trust, need to invest more in safeguarding the transaction.

TU/e - 0ZM05/0EM15/0A150 To do Read and understand the trust paper online (it’s exam material) 20