Experimental economics, history of trust game - Essay Example

This is why there is sometimes a collusive tendency in an oligopoly. There are four distinct models of it, namely, the kinked demand curve, cost-plus pricing, the price leadership and collusive pricing (McConnell and Stanley, p.224). The first experiment conducted relative to the Ultimatum Game was by German economists Guth, Schmittberger and Schwarze or collectively known as GSS in 1982. What they dis was to divide 42 students where one is Player 1 or the allocator and the other is Player 2 or the recipient.

Each Player 1 is asked to allocate however much of the German marks to Player 2. The core of the experiment is simple, if the allocator does not give the recipient anything then they both receive nothing, after a week they were asked to return. This is the basic principle of a simple Ultimatum Game. They found that it is much easier to interpret the bahavior of the recipients. A low offer is viewed as an offshoot of a sacrifice rather than accepting the low amount. The following week, the offer of the allocators became much less while there are two motives in the offer of allocators.

The first motive is simple fairness and the other is anxiety over rejection because they may see that an unfair amount may be rejected. It may be either of these reasons or both that ise moving factor for their offer (Thaler, p.196-197). Berg, Dickhaut and McCabe performed an experiment to determine trust behavior among comsumers in a controlled environment. The basis of their study is anonymity. In the presence of which, consumer behavior is reverted to nonexistent as there is no knowledge or relation between buyer and seller at first meeting.

This is presupposed by Arrow’s suggestion that “transaction costs trust is ubiquitous to almost every economic transaction” (p.123). Moved by questions of factors affecting trust in economic behavior, the experiment sets out to eliminate preconceived notions and subject the participants into a trust game. The experiment guaranteed complete anonymity and the participants only get to invest once, thereby, they controlled the setting and “eliminate(d) mechanisms which could sustain investment without trust; these mechanisms include reputations from repeat interactions, contractual precommitments, and potential punishment threats” (idem).

The experiment found that there exists reciprocity and that decisions of the subjects depend upon their interpretation of each room’s behavior. If it depends upon mutual benefit, then the there is a higher likelihood to reciprocate in that scenario and it is conjunctured with trust. Social history was found to be a determining factor in this analysis. This factor inclines the person toward trusting the other. To further eliminate this fator, those who are recruited were not a part of any previous sessions and they were provided a summary a no history background affects the results (p. 124). The participants were given $10 to invest at various stages throughout the experiment.

The experimenters expected that they will realize sending money in the first stage is risky as there is no concrete evidence of reciprocity. In stage two, it was predicted that they will release money and third where money triples, it is the ideal stage that they will send their money. As a result, they concluded that primitives trust and reciprocity are the moving facors in decision-making among the investors. “By inventing property rights and allowing social history, society stimulates norms of