Is interpersonal trust derived from formal institutions or from social norms?

Last registered on March 14, 2022

Pre-Trial

Trial Information

General Information

Title
Is interpersonal trust derived from formal institutions or from social norms?
RCT ID
AEARCTR-0005289
Initial registration date
January 21, 2020

Initial registration date is when the trial was registered.

It corresponds to when the registration was submitted to the Registry to be reviewed for publication.

First published
January 22, 2020, 11:11 AM EST

First published corresponds to when the trial was first made public on the Registry after being reviewed.

Last updated
March 14, 2022, 10:03 PM EDT

Last updated is the most recent time when changes to the trial's registration were published.

Locations

Primary Investigator

Affiliation
Universidad Privada Boliviana

Other Primary Investigator(s)

PI Affiliation
Universidad Privada Boliviana
PI Affiliation
Universidad Privada Boliviana
PI Affiliation
Universidad Privada Boliviana

Additional Trial Information

Status
Completed
Start date
2020-01-06
End date
2021-12-31
Secondary IDs
Prior work
This trial does not extend or rely on any prior RCTs.
Abstract
In developing economies, commercial transactions frequently occur within the informal economy, with often surprising degrees of contractual complexity. By its non-legal nature, informal contracts will rarely be enforced by Law, hence contacts depend on inter-personal trust and reputation between contracting agents. Interpersonal trust can stem from different sources: education, culture, history, etc. We posit that interpersonal trust, mostly in what relates to commerce, depends on institutions, formal and informal. In the context of extreme degrees of informality in the economy, and in the presence of weak official institutions, such as in Bolivia, inter-personal trust might emanate more from unofficial than from official sources.
This experiment intends to measure interpersonal trust based upon Berg’s experiment (1995), in which the game is slightly modified by allowing players to build up trust aided by the presence of four types of institutions. In a repeated and finite game, the situation is framed as an investment game in which trustors can invest in a business opportunity with a randomly matched entrepreneur (the trustee). The entrepreneur can choose how much to reimburse the investor, which may be less than the initial investment. The randomly assigned institutions can (i) punish low reimbursements (formal institution), (ii) punish low reimbursements but with some low probability (formal imperfect institution), (iii) inform the investor on the reimbursement history of the matched entrepreneur (reputation as an informal institution), and (iv) inform the entrepreneur of the previous aggregate behavior of the group of entrepreneurs (social norm as an informal institution). We hypothesize that while the formal punitive institution should be conducive to larger investments, imperfect formal institutions might be as effective or less than informal institutions in building up trust.
External Link(s)

Registration Citation

Citation
Chumacero, Mauricio et al. 2022. "Is interpersonal trust derived from formal institutions or from social norms?." AEA RCT Registry. March 14. https://doi.org/10.1257/rct.5289
Experimental Details

Interventions

Intervention(s)
We plan to implement a lab-in-the-field trust experiment. Merchants and workers from informal commercial zones in La Paz (Bolivia) will be invited to play a modified version of the investment game (Berg et al 1995), i.e. they will be separated into two groups; players in the first group will be asked to give money or "invest in" the other group in the hopes that players in the second group will return the investment with interests. In the framing of the game, we will call players from the first group "investors", and players from the second group "entrepreneurs". The game lasts 12 rounds with three additional practice rounds. In each round, an investor is randomly matched with an entrepreneur.

We use a between-subject design, assigning participants to one treatment only. However, we exploit within-subject variation by using the first four rounds in the game to establish a baseline of interpersonal trust. In these rounds, no innovation is introduced. From round five on, we introduce four treatments in the form of an institutional arrangement to explore if it is conducive to increased levels of trust and investment:
(T1: SN) Social Norm - taken as an informal institution, participants are informed of how many entrepreneurs reimburse less than the investment in the previous round. This information creates incentives to conform to a social norm.
(T2: PR) Personal reputation - taken as an informal institution, investors are informed of the history of repayments by the entrepreneur with whom they are matched at each round, providing an opportunity for the entrepreneur to build up a favorable reputation.
(T3: II) Imperfect institution- taken as a formal institution albeit dysfunctional, participants are told that if entrepreneurs reimburse less than what has been invested in any round, they might be punished with a certain probability. If punished, they will only receive the show-up fee at the end of the game. The probability of being punished rises by five percent increments each round in which reimbursement has been lower than investment.
(T4: PI) Perfect institution - taken as a formal institution, participants are told that if an entrepreneur reimburses less than what has been invested in at least one round, then he o she will be punished and will only receive the show-up fee at the end of the game.

Then, we collect data on participants' perceptions, risk aversion, trust in government and institutions, membership to merchant's and patronal associations, etc. to explore if variables such as organizational capacity, the reputation of the State, and culture are correlated with treatment effects.
Intervention Start Date
2021-08-02
Intervention End Date
2021-10-29

Primary Outcomes

Primary Outcomes (end points)
interpersonal trust derived from different institutions
Primary Outcomes (explanation)
Interpersonal trust is measured by the amount an investor sends to the trustee, as in Berg et al (1995)

Secondary Outcomes

Secondary Outcomes (end points)
trustworthiness
Secondary Outcomes (explanation)
Trustworthiness is measured by the amount the entrepreneur or trustee returns to the investor, as in Berg et al. (1995)

Experimental Design

Experimental Design
The experiment is based upon Joyce Berg’s "investment game” (1995). An even set of subjects is randomly allocated to two rooms, A and B, half of the group in each. Each session requires six, eight, or ten subjects. Each subject is allocated a tablet, a set of printed instructions, some paper, and a pencil. Subjects cannot communicate with each other. During the experiment, subjects in room A will be framed as “investors”, and agents in room B “entrepreneurs”. Sanitary precautions will be taken in consideration of the pandemic, including the use of surgical masks, hand sanitizer, room ventilation, and social distancing. Tablets and desks will be sanitized before each new game, and paper will be properly discraded.

The game has a duration of twelve rounds. Four rounds are control rounds, and the last eight rounds are treatment rounds. Before starting the game, three practice rounds take place. Each subject will have a constant endowment per round of 40 bolivianos ($us 5.80), so that we can prevent effects related to inequality aversion. At the beginning of each round, each investor is randomly and anonymously paired with an entrepreneur. Each investor can invest any amount, including zero, from her 40 bolivianos in multiples of five, by sending them to the paired entrepreneur. Upon receiving it, the investment sent to the entrepreneur is multiplied by three. Hence, the maximum amount that can be received by the entrepreneur is 120 bolivianos. The entrepreneur can then choose to send back to the investor any amount from the resulting gains, again in multiples of five. Once the entrepreneur decides the amount to send back, the round ends. This procedure is repeated in the remaining rounds.
Before the treatments start, some general rules are laid out and are enforced by the experimenter. The main rules are:
• Pairs are anonymous, meaning that investors do not know with which entrepreneurs they are randomly matched.
• Players have no information on the preceding behavior of the group or of specific individuals
• The experimenter does not intervene or regulate the actions of the players beyond defining the strategy space and explaining the rules
• The experimenter guarantees the fulfillment of each agent’s payment. Payments correspond to the outcome of a randomly selected round using a fair twelve-sided die.

During the experiment, we intend to identify ways to increase investment and retribution by exposing the agents to different sets of rules, i.e. different institutions, which will vary the information available and the expected payoffs. We use a between-subject design, assigning participants to one treatment only. However, we exploit within-subject variation by using the first four rounds in the game to establish a baseline of interpersonal trust. In these rounds, no innovation is introduced and all participants in a group start with the setting described previously. From round 5 on, participants are assigned randomly to one of four treatments. The treatments are as follows.

Treatment 1 (Social Reputation): Starting at round five and for each following round, participants are informed of how many entrepreneurs reimburse less than the investment in the previous round. This information intends to create incentives to conform to a social norm.

Treatment 2 (Individual Reputation): Starting at round five and for each following round, investors are informed of the history of repayments by the entrepreneur with whom they are matched at each round, providing an opportunity for the entrepreneur to build up a favorable reputation.

Treatment 3 (Imperfect institution): Starting at round five and for each following round, participants are told that if entrepreneurs reimburse less than what has been invested in any round, they might be punished with a certain probability. If punished, they will only receive the show-up fee at the end of the game. Participants are issued a warning at the end of the round. The warning states that the experimenter has been notified of the scam and that there is a 5% chance that the entrepreneur will only receive the show-up fee at the end of the game, excluding therefore any gains made during the game. For each additional “scam” move, there is an additional 5% chance of facing charges, therefore a maximum of 40% probability of being sanctioned if she scams at every treatment round. The investor is informed of these rules.

Treatment 4 (Perfect Institution): Starting at round five and for each following round, participants are told that if an entrepreneur reimburses less than what has been invested in at least one round, then he o she will be punished and will only receive the show-up fee at the end of the game.

Concerning the implementation of the experiment, it will be programmed using Google sheets, benefiting from the cloud computing possibilities which allows the use of tablets in a mobile lab, facilitating sanitary precautions (papers are not exchanged, the set-up and duration of the sessions are relatively short), and can permit a sufficiently simple and familiar interface to accommodate the sampled population.

The experiment will be conducted at the facilities of Universidad Privada de El Alto, a public university located near informal commercial zones in the city of El Alto and in the facilities of Universidad Privada Boliviana in La Paz. Recruitment will be made in different popular markets, informal trading zones, and small businesses of the cities of La Paz and El Alto. Inside the university buildings, we will adequate two classrooms to conduct the experiment and participants will be distributed in such a way that they won’t be able to see the strategies of one another. A bio-safety protocol will be implemented and all material should be prepared well in advance and ready to start fieldwork as soon as contagion rates are sufficiently low.
Experimental Design Details
There is no hidden information for this experiment.
Randomization Method
Randomization is done in the office by a computer. We use block randomization by day-of-the-week. Each day, we plan to implement four sessions, and treatments are randomly assigned to one of them. The probability of selecting a treatment depends on the treatment. Treatments 2, 3, and 4 are equally probable, but we assigned a higher probability of selection to treatment 1 (social norms), based on the sample design.
Randomization Unit
Experimental session
Was the treatment clustered?
Yes

Experiment Characteristics

Sample size: planned number of clusters
45 experimental sessions
Sample size: planned number of observations
450 individuals (merchants from La Paz and El Alto)
Sample size (or number of clusters) by treatment arms
15 sessions of treatment 1
10 sessions of treatments 2, 3 and 4
45 sessions in total
Minimum detectable effect size for main outcomes (accounting for sample design and clustering)
Details of power calculation for average treatment effect on interpersonal trust: Baseline mean value of amount sent to entrepreneurs (Y): 20 Bs (50% of total amount available) Standard deviation of Y: 3.16 Bs. Minimum detectable effect: 0.5 SD Confidence level: 95% Power: 80% ICC: 0.3 We allow for heterogeneous effects in treatment 1 (social norms). Effects range: (0.36,0.64)
IRB

Institutional Review Boards (IRBs)

IRB Name
Comité de Ética y Transparencia de la Universidad Privada Boliviana
IRB Approval Date
2019-12-24
IRB Approval Number
CET-02122019
Analysis Plan

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Post-Trial

Post Trial Information

Study Withdrawal

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Intervention

Is the intervention completed?
Yes
Intervention Completion Date
September 30, 2021, 12:00 +00:00
Data Collection Complete
Yes
Data Collection Completion Date
September 30, 2021, 12:00 +00:00
Final Sample Size: Number of Clusters (Unit of Randomization)
55 sessions
Was attrition correlated with treatment status?
No
Final Sample Size: Total Number of Observations
468 individuals, 234 pairs
Final Sample Size (or Number of Clusters) by Treatment Arms
21 sessions of treatment 1 10 sessions of treatments 2 12 sessions of treatments 3 12 sessions of treatments 4
Data Publication

Data Publication

Is public data available?
No

Program Files

Program Files
Reports, Papers & Other Materials

Relevant Paper(s)

Reports & Other Materials