Excerpt
II
Table of Contents
1
Introduction and motivation
2
2
Theoretical background
2
2.1
Trustworthiness
2
2.1.1 Behavioural economics
2
2.1.2 Trust Game
2
2.1.3 Distinction between TWN and Reciprocity
4
2.1.4 Relevance of TWN in group decisions across cultures
4
2.2
Culture
5
2.2.1 Measurement of Culture Overview
6
2.2.2 The IND/COL - Scale
7
2.3
Relation between TWN and culture
7
3
The experiment
8
3.1
The experimental design
8
3.2
Trust Game incentives
10
3.3
Annotations
10
4
Results
11
4.1
The sample
11
4.2
Results IND/COL-Scale
11
4.3
Results TWN
12
4.4
Hypotheses
13
5
Discussion
20
Appendix...III
References...XVIII
1
1 Introduction and motivation
Situations like returning money borrowed from a friend, receiving the planned and
paid medical treatment in a hospital, being a motivated employee as claimed in the
interview, spending money for a project as promised at the charity or choosing a reliable
supply firm are examples where trustworthiness (TWN) might occur. Trust is seen as a
fundamental requirement of a growing and successful economy; hence, trustworthiness
is also an indispensable part. Some might claim that trustworthiness comes from trust,
while others, like Hardin (2002) for example, go a step further and see trustworthiness
as the reason for trusting. Others, like Chauduri and Gangadharan (2007), consider
trustworthiness more important than trust. Hence, additional knowledge about what
impacts trustworthiness, could be helpful in peoples' everyday life as well as in the
economy.
The purpose of my thesis is to provide an answer to the research question "How
does collectivism and individualism relate to trust and trustworthiness when managing
the assets of a group?".
First, I investigate, whether the distinction of the cultural
background of my chosen countries is valid. This assumption does only hold to a certain
degree. I go on with the analysis of the impact on trustworthiness when ones' decision
affect either his own or the payoff of three more group members. According to my data,
there is no evidence that people vary the fraction returned dependent on whether they
decide for themselves or additional group members.
2 Theoretical background
The research question involves three points, namely trustworthiness, culture and the
understanding of managing group assets. To provide information about these points,
they are briefly discussed in the following, before the research question can be
answered.
2.1 Trustworthiness
Barney and Hansen (1994) derive the definition of trustworthiness from Sabel's
(1993) definition of trust, which says that "trust is the mutual confidence that no party
will exploit another's vulnerabilities". Barney et al. interpret the attribute "trustworthy"
as a characteristic of an exchange partner who does not behave in a selfish manner and
does not take advantage of an exposed interaction partner. Barney makes another
notably distinction: due to him the attribute trust refers to the relationship between at
2
least two interaction partners as opposed to that the attribute trustworthy describes a
characteristic of an individual interaction partner.
2.1.1 Behavioural economics
In the eighteenth-century Adam Smith mentioned imperfections in human
behaviour. According to Smith these imperfections might have an impact on economic
decision making. For a very long time economic research simply ignored his idea and
went on with the assumption of the homo oeconomicus. An extensive description of the
homo oeconomicus is, for instance, provided by Tietzel (1981). Tietzel describes the
homo oeconomicus as a completely rational and self-interested payoff-maximizer.
Further research reveals differences between empirical results and expected results
under the assumption of economic rational behaviour focussing only on monetary
outcomes (Henrich, 2001). Originally, economists understood rational behaviour as a
pattern with the focus on maximizing assets. This assumption was expanded and the
field of behavioural economics evolved with the assumption of individuals as utility-
maximizer. This field of research takes non-monetary, other-regarding, social,
preferences into account. In 1944 the Neumann-Morgenstern utility function was
developed, a function to measure utility instead of only monetary payoffs. Thus, each
individual has his own utility function, which accounts for almost everything one could
have utility and also disutility from, for instance from social preferences. Fehr et al.
(2002) analyse a variety of research and come up with a list of the four "quantitatively
most important social preferences", namely preference for reciprocity or reciprocal
fairness, inequity aversion, pure altruism and spiteful or envious preferences. Linnda
Caporael and her colleagues (1989)
were some of those who challenged the validity of
the homo oeconomicus-assumption with a "series of experimental social dilemmas".
She found evidence for a phenomenon that biases towards in-groups cannot be
explained only by traditional economic theories. And further that there might be
additional factors which influence and determine behaviour. Nevertheless, one should
not overgeneralize those findings since the most experimental subjects were
undergraduates from universities in the United States and critics venture the guess that
they are not
representative for the entire society.
3
2.1.2 Trust Game
The Trust Game (TG), also known as the investment game (Berg et al. (1995)), is a
decision task used to measure trust and trustworthiness in economic contexts. The best-
known Trust Game is the one played by Berg et al. (1995). They investigated what
factors (e.g. social history) might have an impact on the probability of the presence of
trust and trustworthiness in economic decisions. Berg et al. has found evidence that the
game-theoretic predictions do not always hold. In their study more than 90% of the
participants deviated from the equilibrium. The TG has been replicated several times,
for instance by Burks et al. (2002), often for the purpose of comparing the results of
Berg et al. to those from a TG with varying modifications of the experimental design.
The TG as in Berg et al. (1995) works as follows: two players are endowed with a
certain amount of money or a money equivalent. One player is assigned the role of the
investor, the other the role of the trustee. First Player A, the investor, has to decide
whether he wants to invest in Player B or not. Player B, the trustee, receives the amount
multiplied by a number bigger than 1. In a second step Player B has to decide whether
he returns a certain amount or not. The game in its original form is a one-shot sequential
game, which means that it is played only once and decisions are made consecutively.
Any interaction or communication between A and B is prohibited. The current
interpretation is the following: the higher the invested amount sent by Player A, the
higher the trust Player A places on an opponent party, and likewise, the higher the back
transfer of Player B the more trustworthy or reciprocal he is, depending on which
information Player B receives. For instance, Player B could get information about the
exact investment, only whether there was an investment or not or maybe will just know,
about previous decisions of the investor. Player A's decision to invest is incentivized by
a potential higher payoff, as it is usual in economic experiments. Hence, given the case,
that the fraction returned by Player B is smaller than the invested amount by A, Player
A would be worse off.
Game theorists use backward induction to derive the result of the TG, a strategy
where one starts from the last decision node of a game, the so-called subgame.
1
The
decision of Player B is such a subgame, where he has to decide how to split the amount.
At this point A has to accept whatever B offers. For B the only rational, subgame
perfect decision is to keep the total amount. Anticipating this decision Player A, will
1
Information collected from the lecture slides of ,,Microeconomics II Game Theory" held by Prof. Dr.
Carlos Alós-Ferrer
4
himself decide rationally to invest nothing. So the game-theoretic prediction is a unique
subgame-perfect Nash equilibrium in which both players keep their initial endowment
(cf. Kreps, 1990).
5
2.1.3 Distinction between TWN and Reciprocity
Trustworthiness is often used as a synonym for reciprocity and vice versa. But one
should be careful with this equation. In their theory of reciprocity Falk and Fischbacher
(2006) define reciprocity as a "behavioral response to perceived kindness and
unkindness [...]". In other words, this indicates that reciprocity needs at least one
preceding action to occur. Combined with the understanding of the aspects of
trustworthiness as an intra-personal characteristic rather than as an interpersonal
response pattern, this might lead to an instrument for the distinction between TWN from
reciprocity. Cox (2004) criticises that one-shot games cannot "discriminate between
transfers resulting from ... reciprocity and transfers from other-regarding preferences."
(p.262). Further, Cox claims that one should be able to distinguish between the motives
for reciprocity. He concludes that often it is not clear what exactly is measured.
2.1.4 Relevance of TWN in group decisions across cultures
There are various situations where it could be time- and moneysaving if one knew
whether the interaction partner can be trusted. Those situations are generally those with
asymmetric informed parties. An example where asymmetric information occurs is a
potential employee who claims to be the best fit for the job. Only the employee himself
knows whether he is or not. This relation is known as the principal-agent theory.
Companies try to solve those problems with the choice of the salary or a probation
period (Jensen, Meckling (1979)). Hence, for companies it might be helpful to know
whether there exists a general strategy to overcome asymmetric information problems.
In general, managers could eliminate uncertainty about potential interaction partners, in
other words, there exists a complete and binding contract about all kinds of rights. This
behaviour decreases potential gains and hence, the overall welfare. Eliminating
uncertainty by building trust and trustworthiness might maximize, but at least increase,
the overall welfare in the economy. Thus, a lack of trust, presumably caused by a lack
of trustworthiness, leads to little or no investments.
Most of businesswomen and businessmen seem to be sensible of the fact that in
foreign countries people have different ways of thinking and traditions. When crossing
boarders for another job position, employees are often prepared for their stay abroad
with a cross-cultural training. Triandis (1988) proposed such trainings and gave
recommendations for better collaboration between collectivistic and individualistic
cultures. That is one reason why nowadays experience abroad has become an essential
6
requirement of employers. Evidence for systematic differences in decision behaviour
between cultures could enable predictions about one's behaviour and therefore lead to
better cooperation caused by symmetric information between economic agents and
groups. Kocher and Sutter (2007) concluded from evidence in literature that, when it
comes to intellectual decision tasks, groups often perform better than individuals do.
Since each culture entails values and characteristics, the next step could be to identify
the main attributes responsible for trustworthiness. This could change the focus of
employers when hiring new employees. With in-service training companies could try to
encourage purposefully those behavioural characteristics. This proposal comes from
Pornpitakpan (2008), who claims, that perceived trustworthiness can be increased by
adapting behavioural pattern of the respectively opposite culture.
There exist some studies about a Trust Game (TG) played cross-culturally, for
instance one by Akai et al. (2009), who compared trust and reciprocity between Austria
and Japan. It was played multiple times one-on-one or with another people's money
(Kvaløy and Luzuriaga (2014)). I do not know about a cross-cultural TG in which
participants had to decide as group heads. This is noteworthy since in most companies
there are teams rather than individuals responsible for cooperation and trading with
other companies from abroad. Consider, for instance, a manager who has to decide
whether his team or firm should cooperate with another company or not. His decision
will affect not just himself but many others. Quite often a manager does not even know
whom in particular his decisions will affect. If, for example, research finds out, that,
with a growing number of affected employees, managers behave more trustworthy in
the sense caring for the affected employees, this might have an impact on the design the
firm's management positions.
2.2 Culture
"Culture" is probably a concept most feel familiar with. Culture influences the
individual's behaviour and decision making, it determines attitude towards teaching and
teaching of values (Triandis, 1995). Thus, every decision one makes, is influenced by
one's social environment and vice versa. Nevertheless, culture seems to be very difficult
and not very clearly definable. Kroeber and Kluckhohn (1963) analysed a vast number
of definitions for "culture". According to their findings, culture can be classified into
seven groups taking historical, psychological, structural and genetic influences into
account. Most of the definitions Kroeber and Kluckhohn collected are very broad and
7
describe culture as a concept which contains varying aspects concerning knowledge,
habits, political attitudes, morals and other social values. For Hofstede (2011) culture
"is the collective programming of the mind that distinguishes the members of one group
or category of people from others". (p.3) Hui and Triandis (1986) explain that "IC
[Individualism Collectivism] can be seen as a cultural variable as well as a personality
variable" and further that "it is useful, therefore, to view collectivism as a cluster of a
wide variety of beliefs and behaviors". (p.229)
2.2.1 Measurement of Culture Overview
If the definition of culture already seems to be difficult, the measurement is even
more challenging. Hofstede (1984) uses an individualism index, a one-dimensional
view of human values. According to Hofstede, individualism and collectivism are
extremes of a continuum. Hence, national cultures could be either one or the other of
those extremes or could lie anywhere in between (Singelis (1995)). Triandis and Brislin
et al. (1988) came up with the idea of different types of selves, namely horizontal
individualism (HI) and vertical individualism (VI), horizontal collectivism (HC) and
vertical collectivism (VC). Those four categories stand for uniqueness (HI),
achievement orientation and autonomy (VI), cooperativeness (HC) and dutifulness and
competition (VC). Triandis (1995) revised this classification and claims that there are
four kinds of self: "independent" or "interdependent" and "same" or "different".
Combining those attributes allows for a distinction between four types of culture. Thus,
"interdependent" and "independent" distinguish collectivism and individualism. The
attributes "same" and "different" describe whether one self is assumed to be as the other
(horizontal) or if individuals are assumed to be different (vertical). Furthermore,
Triandis argues, that both, individualism and collectivism, can be horizontal or vertical
orientated, in the sense that there exists either a preference for equality (horizontal) or
for hierarchy (vertical) among the society. In addition to that, he claims, that
individualism in one country is not identical to individualism in another. And further,
that two individualistic nations have in common, that they emphasize attitudes more
than norms. In collectivistic countries, norms are emphasized more than attitudes.
2.2.2 The IND/COL - Scale
With the Model of National Culture Hofstede provides information about the
cultural differences and similarities of approximately 100 countries. Hofstede (2011)
8
distinguishes
between
six
dimensions
of
national
culture,
one
is
Individualism/Collectivism (IND/COL). He defines Individualism as "the degree to
which people in a society are integrated into groups". Singelis et al. (1995) analysed
existing research and came to the conclusion that "we need instruments that are both
relatively short and reliable". They developed the IND/COL-Scale with which Singelis
and his colleagues "attempted to provide such items". This scale is a set of 32 questions
with eight items each. For each question one is asked to express how much he agrees or
disagrees with the statements. The answer scale ranges from 1 ("definitely no") to 9
("definitely yes"). Eight items are assigned to each of the four types of self as proposed
by Triandis and Brislin (1988), namely horizontal individualism (HI), vertical
individualism (VI), horizontal collectivism (HC) and vertical collectivism (VC).
2.3 Relation between TWN and culture
For a long time, culture has been investigated mainly in the field of social
psychology with a strong connection to the analysis of the social self and first
distinctions between two concepts comparable to individualism and collectivism (cf.
Fiske (1992), Rokeach (1973)). Most of the today's knowledge used for economic
research is based on studies of social psychologists, mainly from Triandis and Hofstede.
More and more research was done, most resulted in deviations from the homo
oeconomicus and lead to multiple evidence that decision-making is not limited to
maximising monetary assets but that there exist social preferences. Social preferences
are preferences which cannot be measured in monetary but in utility units. Hence,
deciding for equally distributed payoffs could also be rational, if one is inequality
averse. Classical course book economics teaches rationality as being self-interested in
the sense that one aims to maximize his monetary payoff. Hence, rationality can be
might be understood as the motivation for the decision to maximize the own payoff.
However, empirical evidence indicates the classical economic understanding to be
incomplete. Hence, scientists started to involve social preferences in their models and
theories. Tajfel and Turner (1979) developed the social identity theory. This theory
states, that people have preferences for in-group members rather than for outgroup
members. If the human in the decision process evidently has an impact on the result,
then one could argue that, since culture forms the way of thinking and acting of a
human, it is rather culture that influences behaviour (Triandis, (1995)).
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- Elvira Tafarrohi (Author), 2015, The influence of collectivism on trustworthiness when managing the assets of a group, Munich, GRIN Verlag, https://www.grin.com/document/430949
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