Incomplete-Information Models of Guilt Aversion in the Trust Game

Abstract

In the theory of psychological games it is assumed that players' preferences on material consequences depend on endogenous beliefs. Most of the applications of this theoretical framework assume that the psychological utility functions representing such preferences are common knowledge. But this is often unrealistic. In particular, it cannot be true in experimental games where players are subjects drawn at random from a population. Therefore an incomplete-information methodology is called for. We take a first step in this direction, focusing on guilt aversion in the Trust Game. In our models, agents have heterogeneous belief hierarchies. We characterize equilibria where trust occurs with positive probability. Our analysis illustrates the incomplete-information approach to psychological games and can help organize experimental results in the Trust Game.JEL classification: C72, C91, D03. j is going to blame i for letting him down. Vanberg (2008) and Ellingsen et al. (2010) question the guilt-aversion interpretation of pro-social behavior in the Trust Game. 2 We coined the name "Trust Minigame" after the "Ultimatum Minigame" of Binmore et al. (1995), a binarychoice version of the Ultimatum Game.3 On the one hand, higher levels of oxytocin in trustees are correlated (between subjects) with higher investment by trusters and higher sharing , see also Zak 2008. According to the guilt-aversion model, oxytocin can thus be interpreted as the transmitter from second-order beliefs (expected disappointment from not giving) to the pro-social action. But in the case of trusters, higher levels of oxytocin are not correlated (between subjects) with higher investment. And yet, Kosfeld et al. (2005) show that an exogenously induced increase in the oxytocin level increases investment, which suggests that it is the difference between baseline and actual level of oxytocin that affects pro-social behavior. We submit that the role of truster is a social cue that shuts down the link between second-order beliefs and oxytocin levels (cf. Carter & Keverne 2002); thus, oxytocin differences between trusters mainly reflect differences in baseline levels, not in second-order beliefs.

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“…We interpret such insensitivity of guilt aversion to variations of the co-player's vulnerability and decision rights, while keeping fixed the role and payoff of the potentially guilty player, as further support to guilt triggered by the player's specific role in games with asymmetric roles, as suggested by Attanasi et al (2016). Once being assigned the role of second mover in a Trust game, a potentially guilt-averse subject discloses consistent belief-dependent behavior regardless of the vulnerability and the decision rights of the co-player he might disappoint.…”

Gender differences in guilt aversion in Korea and the United Kingdom

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