This paper reports on an experiment studying the effectiveness of a deposit mechanism on increasing trust and trustworthiness. The deposit mechanism is modeled as a monetary transfer from the trustee to the trustor prior to the transaction. If the deposit is implemented, it makes the trustor at least as well off as if no transaction ever took place, but does not give him any means of enforcing the contract. Our experiment consists of a three treatments Baseline, Deposit, and Endowment Control implemented in an across subjects design. Baseline is the standard investment game by Berg et al. (1995). There are two players, A and B, both endowed with $10 at the beginning of the game. The first mover, player A, decides on an amount whether to send a whole dollar amount t &ισιν;{0,1,2,...,10} to her counterpart player B. The amount sent is tripled by the experimenter. The second mover, player B, then decides how much of the tripled amount, r &ισ ιν;{0,...,3t} in whole dollar amounts to return to player A. Deposit involves the investment game as described in Baseline and a pre-game stage during which player B has an option to transfer his whole $10 endowment to player A. In the actual game that follows player A can still send a maximum of $10 even if player B decided to transfer his endowment to player A. Endowment Control treatment is analogous to Baseline and differs only in the endowment given to both players: Player A starts the game with $20 and player B with $0. We observe that majority of trustees offer their endowment to trustors during a pre-game stage. Such deposit significantly increases the amounts sent by trustors when controlling for the differences in payoffs created by receiving a deposit. Trustees are, however, not better off by giving a deposit as the increase in the amount sent by trustors is not large enough to offset the trustees' loss. We also find that trustees do not change the amount returned after they have given a deposit.

Additional Metadata
Keywords Deposit, Experimental economics, Trust, Trustworthiness
Conference 18th World IMACS Congress and International Congress on Modelling and Simulation: Interfacing Modelling and Simulation with Mathematical and Computational Sciences, MODSIM09
Citation
Servátka, M. (Maroš), Tucker, S. (Steven), & Vadovič, R. (2009). Does giving a deposit increase trust and trustworthiness?. In 18th World IMACS Congress and MODSIM09 International Congress on Modelling and Simulation: Interfacing Modelling and Simulation with Mathematical and Computational Sciences, Proceedings (pp. 1464–1470).