DIRECT AND INDIRECT TRUST AND RECIPROCITY^
Nancy R. Buchan *
Rachel T.A. Croson **
Robyn M. Dawes ***
Abstract
We examine the extent to which people trust and reciprocate in situations of direct and indirect
reciprocity. Our first study shows that as the potential for direct reciprocity between the trustor
and reciprocator decreases, levels of trust and reciprocation decrease also; yet, on average, these
levels remain significantly above equilibrium predictions. Our second study extends these
results to three Asian countries. We find not only that levels of trust and reciprocation vary
across countries, but that the drop-offs in trust across direct and indirect reciprocity conditions
vary across countries as well. These differences in drop-offs suggest a significant country
influence on the boundaries of trust.
^ We thank the participants at the Economic Science Association, the Society for
Judgment and Decision Making, and the European Association of Experimental Social
Psychology meetings along with seminar participants at Yale, Texas A&M University and UC
San Diego for their insightful comments and feedback on this research. We are also grateful to
Peter Dickson for his input on the manuscript. The second author’s research was supported by
NSF grant SES# 98-76079-001.
I. Introduction
In a recent issue of Science, biologists hail trust and reciprocity as the “basis of all human
systems of morality” [Nowak and Sigmund, 2000]. Indeed, the growing literature on trust across
a number of academic fields focuses on its centrality to every area of our lives. Economists have
demonstrated that a rise in country-level trust increases economic growth [Knack and Keefer
1997]. Political scientists and economists have shown that the level of trust in a society
influences governmental and judicial efficiency [Putnam 1993; LaPorta, et al. 1997].
Psychologists maintain that trust plays a prominent role in the emergence of cooperation in
problems of collective action [Dawes 1980]. Business researchers have claimed that being a
“trusted cooperator” within a global network is requisite to achieving competitive advantage
[Morgan and Hunt 1994]. Finally Alan Greenspan underscored the critical nature of trust to our
economic way of life, “Trust is at the root of any economic system based on mutually beneficial
exchange… if a significant number of people violated the trust upon which our interactions are
based, our economy would be swamped into immobility” [1999].
This previous research demonstrates the aggregate benefits of trust to groups of people or
to societies as a whole. In contrast, most of the experimental research on trust in economics has
focused on trust and reciprocity at the individual level [e.g. Fehr et al. 1993; Berg, Dickhaut and
McCabe 1995, Glaeser et al. 1999]. This individual level research demonstrates that trusting
behavior and reciprocation are robust across a number of economic contexts. However, these
studies all have examined trust in situations of direct reciprocity – where the actions of the
reciprocator (in whom one placed trust) directly impact the fortunes of the trusting individual. In
contrast, in societal-level trust, reciprocity is likely to be indirect. What is needed is a link
between our understanding of trusting behavior on the part of individual and our knowledge of
1
trust and its influence on society. Our paper begins constructing this link by experimentally
examining trust in the presence of indirect reciprocity - where the actions of the reciprocator (in
whom one placed trust) will impact the fortunes of someone other than the trusting individual.
Some empirical research provides a clue to this link by demonstrating the crucial role of
trust in sustaining successful export clusters [e.g. Krugman 1995; Schmitz 1999]. The key to
achieving such trust among cluster members, suggests Sabel [1993], is a shift in thinking of trust
as rational self-interest to trusting in a shared sense of community with a common fate.
In this paper we examine the extent to which economic actors are willing to trust for the
benefit of the group or community. We begin by examining the extent to which individuals trust
in situations of direct reciprocity, and compare that to levels of trust and reciprocation displayed
in two different situations of indirect reciprocity. In one situation a member of the trustor’s
group will benefit from potential reciprocation, in the other, a random member of society will
benefit from the trustor’s actions.
To examine indirect trust we extend the trust game devised by Berg, Dickhaut, and
McCabe [1995] by manipulating the target of potential reciprocation. In the original trust game
two players, the sender and the responder, are each given an endowment. The sender is told he
can send some, all, or none of his endowment to his anonymous partner, the responder. Any
money sent is tripled. The responder then chooses how much of her total wealth (her
endowment plus the tripled money) to return to the sender. Any money the responder does not
return is hers to keep; thus the responder plays a dictator game with the pool of money generated
by the sender’s actions. The unique subgame perfect Nash equilibrium for this game (for selfinterested actors) is for the responder to return no money, and thus for the sender to send none.
In our experiment we label this the direct condition because of the direct nature of the potential
2
reciprocation (the responder returns money directly to the sender from whom she received it).
This basic trust game is similar to the economic setting of one-shot investing with imperfect
contracts. The sender (investor) creates value with his investment, but cannot perfectly contract
with the responder (agent) to ensure sharing of that value created.
We extend the direct trust experiment by adding two conditions to examine different
types of indirect reciprocity. In the group condition, the target of potential reciprocation is
someone in the sender’s (experimental) group. In the society condition, the target of potential
reciprocation is a randomly chosen person from (the experimental) society. In both indirect
conditions the equilibrium remains for the responder to return no money and for the sender to
send none.
Although our experiment protects anonymity, the group condition is similar to the type of
indirect trust found in exporting clusters; another member of a small group benefits from one
player’s trusting behavior. The society condition is similar to the situation of contributing to a
public good; another member of a large society benefits from one player’s trusting behavior.
Our first study compares these three treatments using subjects from the United States. Our
results demonstrate that as the potential for direct reciprocity between the sender and
reciprocator decreases, levels of trust and reciprocation decrease also; yet, on average, these
levels remain significantly above equilibrium predictions.
In our second study, we extend this experimental design to three Asian countries: China,
Japan and Korea. We examine the extent to which these individuals trust in situations of direct
and indirect reciprocity. We then aggregate these results to the country level to discern whether,
as some have suggested, there are differences across countries in levels of trust [Arrow 1972;
Knack and Keefer 1997; Fukuyama 1995]. Our results reveal differences across countries in
3
levels of trust and reciprocity – although in ways different than predicted by theories from
economics or cross-cultural research. Perhaps the most interesting finding from this study is an
interaction between condition and country. That is, across the four countries, we find different
drop-offs in trust extended across experimental conditions; in the US and China, the drop-off in
trust comes between the direct and group conditions (direct > group = society). In Japan and
Korea, the drop-off occurs between the group and society conditions (direct = group > society).
For a preview of these results, the reader is referred to Figure VI. These results imply not just
that the extent of trust varies across countries, but that the reliance of trust on direct reciprocation
varies across countries as well.
Our paper continues as follows. In Section II we provide a review of the literature on
indirect trust and reciprocation and our hypotheses. In Section III we describe our methodology,
which is followed by a description of our results in Section IV. Sections V, VI and VII provide
hypotheses, methodology and results for the second study. In Section VIII we discuss the
implications of our results for economic behavior and conclude.
II. Previous Literature and Hypotheses
The trust game employed here has been widely used to examine trust and reciprocation in
economic settings.1 Deviations from the self-interested equilibrium of the game are attributed to
trust (on the part of the sender) or reciprocity (on the part of the responder). The first paper
using the trust game [Berg, Dickhaut, and McCabe 1995] reported significant levels of trust and
reciprocation; 30 of 32 senders sent money in the game (exhibited trusting behavior), and 24 of
those 30 decisions resulted in money returned. These results are also found in other settings.
For example, the experiments of Fehr, Kirchsteiger, and Riedl [1993] and Fehr, Gachter, and
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Kirchsteiger [1997] demonstrate that generous (trusting) behavior on the part of firms induces
similar reciprocal responses on the part of workers in the context of labor markets with
incomplete contracts. McKelvey and Palfrey [1992] observe similar trust and reciprocal
behavior in experiments based on the centipede game where each player can increase the pie by
trusting the other not to take the money and exit the game. In the peasant-dictator game of Van
Huyck, Battalio and Walters [1995], when the peasant moves before the dictator (as is the
sequence of moves in the trust game), peasants trust dictators more than predicted by economic
theory, and display trust most at low levels of endowment. Finally, Van der Heijden et al. [1998]
demonstrate the power of expectations of reciprocation in the poverty game by showing that
average gifts by senders were 40% higher when the responder would learn the size of the gift,
than when they would not.2 All of the above studies have experimentally demonstrated the
existence of trust and reciprocity under conditions of direct reciprocity. Based on this previous
research we hypothesize:
H1: We will observe positive amounts sent and reciprocated in the direct reciprocity condition.
However, we anticipate that trust and reciprocity will decrease in situations of indirect
reciprocity. Williamson [1993] suggests that trust is based, at least in part, on expectations of
reciprocation. It follows then, that if the chance of receiving direct reciprocation is absent, the
motivation to trust is decreased. Additionally, if reciprocation is based in part on a desire to
reward or punish a partner [as suggested by Fehr et al. 1993; Fehr et al. 1997; Abbink, Irlenbush,
and Renner 2000], then the propensity to reciprocate should be diminished in a context where the
1
Other, related games have been developed and tested experimentally as well, e.g. Kreps 1990,
Rosenthal 1982.
2 Van der Heijden et al. [1998] also study a form of indirect reciprocation in their pension game. In this
game, however, the self-interested motivation for trust is highly salient due to overlapping structure of the
game; ie. I give to Player 1, but then Player 3, who gives to me, may reward or punish me for my actions
5
ability to reward or punish a trusting or non-trusting partner is removed. Therefore we
hypothesize:
H2: Amounts sent and reciprocated will be less in the indirect reciprocity conditions than in the
direct reciprocity condition.
Finally, we suggest that trust and reciprocity are likely to be higher in the group condition
than in the society condition. Glaeser et al. [1999] demonstrate that the degree of social
connection between the sender and responder in trust games generally predicts the level of trust
and reciprocation.3 In a related (dictator) setting, Hoffman, McCabe and Smith [1996] conclude
that as social distance (isolation) increases, amounts given decrease. Similarly, experimental
research studying ingroup/outgroup biases in social dilemmas [Orbell, van de Kragt and Dawes
1988] and in a three person dictator game [Frey and Bohnet 1997] demonstrate that behavior
toward someone in one’s own group will be more favorable than behavior to someone who is not
a member. Based on this research, we believe that the degree of connectedness between the
sender, the responder, and the target of reciprocation will have a positive influence on trust and
reciprocation. Therefore we hypothesize:
H3: . Amounts sent and reciprocated will be higher in the group condition than in the society
condition.
III. Experimental Design and Procedures
In this section we describe the experimental design and procedures that we use to test the
hypotheses above.
A. Experimental Design
to Player 1. This is in contrast to the group and society conditions in our experiment where the selfinterested motivations for trusting and reciprocal behavior are clearly minimized.
3 Glaeser et al. define “social connection” as the “number of friends they have in common, being
members of the same race or nationality and the duration of their acquaintanceship” [p.4].
6
One hundred and forty students from the University of Wisconsin-Madison participated
in this study. Subjects were primarily sophomore or junior students in economics or business
classes who were paid their actual monetary earnings from the experiment. We ran three
sessions of the experiment, one for each of our conditions. Subjects signed up for a session
without knowledge of any differentiation in experimental conditions. Once arriving at the
experiment, subjects were randomly assigned to one of two rooms, the sender room or the
responder room. An effort was made to assign friends who came to the experiment together to
the same room. The reason was to minimize any perception on part of subjects that their partner
in the other room (though identified anonymously) could be their friend.
B. Experimental procedure
The experiment was run using double blind procedures; thus, the experimenter did not
know the identities of the subjects, and subjects’ identities were kept anonymous from one
another. Subjects were instructed not to talk or communicate with any other subjects during the
experiment. This “no communication” rule was enforced by monitors located in the
experimental rooms. The basic procedure for the trust game is as follows. Subjects in each room
received written instructions for the game, including a diagram of the game structure (Figures I,
II, and III below), and a unique subject ID number. The instructions also included a quiz
concerning the experimental procedure and the transactions involved, to make certain that all
subjects understood the task. All experimental instructions are available from the authors upon
request. Once subjects completed the quiz correctly, they were given a numbered envelope
containing the experimental fee of $10. The number on the envelope represented the subject’s
own identification number.
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Senders removed their money and replaced in the envelope any money they wished to
send to the responder. Monitors collected the envelopes and took them to the experimenter in a
different room who recorded the amount sent, tripled it, and placed the tripled money into
different numbered envelopes for delivery by another monitor to the appropriate responder.
Notice that this implements a double-blind procedure [Hoffman et al. 1996]. The monitor who
saw the participant did not know the amount they sent, while the experimenter, who saw the
amount sent, did not know the participant. The subjects, of course, did not know the identity of
their partner.
The responders then opened their envelopes, and decided how much of their own
experimental fee plus any (tripled) money received, to return to the appropriate responder. They
placed that amount back into their envelopes. Monitors collected the envelopes from the
responders and gave them to the experimenter who recorded the amounts returned, placed the
money back into the senders’ original envelopes, and forwarded the envelopes into the senders’
room for distribution by the monitors. At this point the experiment had ended. Subjects
completed a post-experimental questionnaire, were paid their earnings privately and dismissed.
C. Direct Condition
The direct condition is depicted in Figure I. This is the most basic condition in the
experiment, identical to that of Berg et al. [1995] and Glaeser et al. [1999], in which Sender A
sends some, all, or none of his money to Responder B. On the way from Sender A to Responder
B the experimenter triples the money. Responder B then has her own show up fee plus triple the
money sent by A, and can return some, all, or none of her total wealth to A. Aside from
explaining the experimental procedure, the wording on the instructions specific to this condition
is “You will interact with a Responder for purposes of this experiment.”
8
-----------------------------------------Insert Figure I about here-------------------------------------
D. Group Condition
The group condition is depicted in Figure II. In this condition, Sender A sends money
(which is tripled by the experimenter) to Responder B. At the same time, Sender C sends money
(which is tripled by the experimenter) to Responder D. Responder B then returns some
proportion of her wealth to Sender C, while Responder D returns some proportion of his wealth
to Sender A. Aside from explaining the experimental procedure, the wording on the instructions
specific to this condition is “You will interact with three other people for purposes of this
experiment.” As an additional reinforcement of the group manipulation, each group was given
differently colored instructions.
-----------------------------------------Insert Figure II about here-------------------------------------
E. Society Condition
The society condition is shown in Figure III. In this condition, Sender A sends money
(which is tripled by the experimenter) to Responder B. At the same time, Responder D receives
money from a different, randomly chosen, sender in Sender A’s room. Responder D then returns
some proportion of his wealth to Sender A, while Responder B returns some proportion of her
wealth to a randomly chosen sender in Sender A’s room. Aside from explaining the experimental
procedure, the wording on the instructions specific to this condition is “You will interact with
two responders for purposes of this experiment.”
9
-----------------------------------------Insert Figure III about here-------------------------------------
IV. Results
The dependent variables in our analysis are the amount sent by the sender to the
responder and the proportion returned by the responder. We calculate the proportion returned as
the amount responders returned divided by their total wealth (three times the amount the sender
sent plus the endowment). This proportion is the proportion of the pie that responders are
returning to senders in dictator-fashion.
For purposes of analysis, monetary amounts have been standardized on a scale from 0 to
1,000 units. Figure IV graphs the resulting data from this experiment in each of the three
conditions. The data for each condition are presented in descending order of amount sent, shown
as the thin bars. For example in the direct reciprocity condition, five of fourteen senders sent
their entire endowment for the experiment (1,000 units). The data are further sorted by the
proportion returned from this responder (shown as a black diamond) as the secondary axis on the
right. Continuing with the example of the direct condition, of the five responders who were sent
the sender’s full endowment of 1000 units, one responder returned 50% of their total wealth.
-----------------------------------------Insert Figure IV about here-------------------------------------
Table I provides the means and standard deviations in amount sent and proportion returned
across conditions.
-----------------------------------------Insert Table I about here-------------------------------------
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A. Amount Sent
Across all conditions subjects largely ignored the equilibrium of sending no money and
instead opted to trust. These results are consistent with previous results from the trust game in
the US [Berg et al. 1995]. The mean amount sent across all senders was 554 units (out of 1,000
units). In the direct condition zero senders sent nothing to their partners, in the group condition 2
of 28 senders sent nothing, and in the society condition 3 of 38 senders sent nothing.
The first column of Table II shows the results of regressions of amount sent on
experimental condition. In addition, gender and level of economics education were both entered
as controls in the analysis, neither however proved to have a significant influence on amount
sent.
-----------------------------------------Insert Table II about here-------------------------------------
First, we find strong evidence that subjects are willing to engage in direct trust, in support
of Hypothesis 1. Subjects also engage in indirect trust by sending money, even when they are
not the recipients of potential reciprocation. The mean amounts sent are 782.14 units in the
direct condition, 488.64 units in the group condition, and 505.46 units in the society condition.
Thus, even in the society condition where there is no potential for personally benefiting from
reciprocation, the amounts sent far exceed the equilibrium prediction.
However, results from the analysis of amounts sent reveal that subjects’ trust is
significantly and negatively influenced as the reciprocation becomes more indirect. The
coefficients for both the group and society conditions are negative and significantly different (at
the p<.01 level) from the direct condition (the omitted condition in the regression). Thus we see
11
significantly lower levels of trust as we move from the direct to the indirect reciprocity
conditions, as predicted by Hypothesis 2.
Finally, orthogonal contrasts from regression 2 reveal that the amount sent in the society
condition is not significantly different than the amount sent in the group condition; F(1,69) =
0.08, ns. Thus we find no support for Hypothesis 3.
B. Proportion Returned
Table I above provides the means and standard deviations in proportions returned across
conditions. The second column of Table II shows the results of regressions of proportion
returned on experimental condition. As in the regression on amount sent, gender and level of
economics education were both entered as controls in the analysis; neither was significantly
related to the proportion returned.4 The amount sent by the sender to the responder was also
entered as a covariate in the regression model and was significantly related to the proportion
returned. This suggests that not only do responders who receive more return more absolutely,
they return more as a proportion of their earnings. Thus, the extent of reciprocation is clearly
influenced by the amounts sent.
We find strong evidence of reciprocity even when the reciprocation is indirect. The mean
proportions returned are .319 in the direct condition, .114 in the group condition, and .130 in the
society condition. Thus we have support for Hypothesis 1 of positive levels of reciprocity even
4
Data from this study in the direct condition replicates the gender results in Croson and Buchan [1999].
Like the current results, Croson and Buchan found no effect of gender on amount sent. And as with the
current results, Croson and Buchan found that women were significantly more reciprocal than men in the
direct condition. The average proportion returned by women in the earlier experiment was 37.4%, versus
28.6% by men. In the direct reciprocity condition in the current experiment, the proportion returned by
women is 37.2% versus 26.8% by men. Both differences are significant at the .05 level (t=2.24 and
t=2.14 respectively). However, in this study we find no gender differences in conditions of indirect
reciprocity.
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in the direct reciprocity one-shot game, and find deviations from equilibrium predictions in the
other conditions as well.5
Mirroring the results for amount sent, as the target of reciprocation becomes less direct
subjects’ propensities to reciprocate are significantly and negatively influenced. As in the
analysis of amount sent the coefficients for both the group and society conditions are
significantly different from the direct condition, the omitted condition in the regression (p<.01
for both). Thus, as with the levels of trust displayed, we see lower levels of reciprocation as we
move from the direct to the indirect reciprocity conditions, consistent with Hypothesis 2.
However, as with amounts sent, we find no significant differences between the group and
society conditions; F(1,69) = 0.72, ns. Thus our results are not consistent with Hypothesis 3.
C. Payback Decisions and Earnings
To gain an understanding of how the trust and reciprocation decisions influenced the
wealth of senders and responders in the experiment, we graphed the joint earnings of the players
in the manner done by Berg et al. [1995] across the conditions (Figure V). The large outer
triangle with points {(0,4,000), (1,000, 1,000) and (3,000, 1,000)} indicates the set of earnings
for the sender and responder pairs in which the responder’s final earnings equal at least her
endowment. The “No payback line” indicates where k (the amount reciprocated by the
responder) = 0. The “Breakeven line” represents the break-even point for the sender, k=1/3(3 x
Amount sent), and the area to the right of this line indicates positive returns to the sender. The
“Split total return line” denotes outcomes when the responder evenly splits the amount she
5A
number of other measures of reciprocation have been suggested by colleagues, and we have tested
three of them. The first is purely the absolute amount returned by the responder, the second the
proportion of money received by the responder that was returned to the sender and the third, the amount
kept by the responder – responder’s endowment – amount sent by the sender. We ran analyses using
each of these suggested measures and find that our main results are robust and that all four measures
(including the one used in the paper) result in the same rankings of reciprocation across conditions and
13
received; k= 1/2(3xAmount sent). The “ Split total earnings line” designates when the responder
splits total earnings inclusive of her show-up fee; k=2/3(3xAmount Sent). Note that points lying
below the (3000, 1000) line represent those pairs where the responder was excessively reciprocal
and returned to the sender not only the entire amount received but also a portion of her own
endowment. Identical data points have been offset slightly.
-----------------------------------------Insert Figure V about here-------------------------------------
A regression on the value k with condition as an independent variable indicates
significant differences across conditions in the wealth distributions between the senders and the
responders. A Tukey HSD test comparing k across conditions shows that k is significantly
higher in the direct condition (k=.462), than in the group (k=.207), or the society (k=.205)
conditions (p<.05). Responders are splitting the total experimental earnings nearly equally with
senders in the direct condition, but in the group and society conditions senders are on average,
not quite breaking even.
Using the definition of reciprocity proposed by Berg et al. [1995], where a reciprocal
responder is one who returns at least as much as was sent, we see that in the direct condition nine
of 14 responders (57%) were reciprocal,6 in the group condition four of 28 responders (14%)
were reciprocal, and in the society condition five of 28 responders (17%) were reciprocal.
countries. For the sake of comparability to previous literature, we will use the proportion returned
measure as has been used previously.
6 To compare this proportion with the results from Berg et al. [1995] we look only at the American direct
condition in our experiment. In the Berg et al. experiment 46% of the responders who received money
were reciprocal. In our experiment, 50% of the American responders who received money in the direct
condition were reciprocal.
14
In summary, these results demonstrate that in the United States, subjects are willing to
engage in indirect as well as direct trust and reciprocity. Although levels of trust and
reciprocation decline as the potential for direct reciprocation between the sender and the
responder decreases, on average these levels in both the direct and indirect conditions remain
significantly above the self-interested equilibrium predictions. In the next study we investigate
whether there exist differences in levels of trust and reciprocation internationally, and
specifically, extend our investigation of direct and indirect trust by comparing levels of trust and
reciprocation in each condition across countries.
V. Indirect Trust and Reciprocity Internationally
Our second study uses the methodology and analysis developed in the first study to
investigate the extent of direct and indirect trust and reciprocity in China, Japan and Korea.
This section will describe some previous literature and hypotheses relating to cross-national
differences in general levels of trust, the next describes the experimental procedures and controls
unique to the cross-cultural study, and the third offers results.
We have competing theories of the extent of trust in other countries; one based on
economics, the other two on cross-cultural research in psychology and sociology. The economic
theories rely on an evolutionary argument. Tullock [1985] suggests that when traders are able to
select their partners in a market with continuous public communication of previous outcomes,
the profitability of short-term opportunism is greatly reduced: “if you choose the noncooperative
solution, you may find you have no one to noncooperate with.” [Tullock 1985, p. 1080]. In
nations where free and open markets have existed for decades, a norm of trust and reciprocation
may thus have developed. This hypothesis suggests that cultures with a long and rich history of
15
free trading will exhibit higher levels of trust and reciprocity. Indeed, the conclusion of Smith
[1878], Hayek [1998], and Klein [1997] is that commercial trade elevates the general manners,
probity, trust and cooperation of a culture. Following this logic, we expect Chinese subjects to
exhibit the lowest levels of trust and reciprocity because modern free market commerce has only
been adopted by China in the last decade. American subjects should exhibit the highest trust and
reciprocity because the United States has had a long history of free market commerce, and the
Korean and Japanese subjects should exhibit levels of trust and reciprocity somewhere in
between.
H4a: Amounts sent and reciprocated will be highest in the US, less in Korea and Japan, and least
in China.
An alternative argument for national differences in trust originates in theories of social
capital [Coleman 1990; Gambetta 1988]. In a widely read book, Fukuyama [1995] developed
the thesis that a nation’s well-being and global competitiveness is dependent on the level of
cooperative trust (or social capital) inherent in the society. According to Fukuyama, trust is
nurtured in a culture through tradition, repetitive reinforcement, and vicarious learning (by
example). Trusting norms are transmitted as arational social habits. A major thesis developed
by Fukuyama is that the very strong bonds of kinship trust that have been observed to historically
exist in China and Korea create family in-groups and rest-of-the-culture out-groups. This reduces
the level of social capital outside families in those societies and has a negative impact on trust
and reciprocation among non-family members. In contrast, Fukuyama claims that the Japanese
and American national cultures are much more spontaneously sociable and trusting because of
Japan’s history of feudalism and the United State’s sectarian, Protestant heritage. Fukuyama’s
16
theory thus predicts that Chinese and Korean subjects will exhibit the lowest levels of trust and
reciprocity compared to the Japanese and American subjects.
H4b: Amounts sent and reciprocated will be greater in Japan and the US than in China and
Korea.
Finally an ongoing debate of trustingness between Japan and the United States leads to
two competing hypotheses. The beginning of this debate came in a widely read and
controversial book in the popular business press by Ouchi [1981]. In it he argued (through the
use of anecdotal evidence) that Japan’s unique culture fostered greater trust relative to that in the
United States, and that it was this trust that sustained the massive corporate networks in Japan
and led to its post-war economic success. The opposite view was taken by Yamagishi and
Yamagishi [1994], and by Hagen and Choe [1998]. Yamagishi and Yamagishi have
demonstrated through surveys, and Hagen and Choe through observation of buyer-seller
relationships in Japan, that Japanese have greater assurance of the behavior of a partner due to a
system of mutual monitoring and sanctioning within that society that demands cooperation.
Thus, they say, in the absence of uncertainty about a partner’s actions, vulnerability to the
partner’s behavior is missing, and behavior in Japan is not actually trusting but simply a
dependence on those sanctions. Thus, they argue, it is actually Americans who have higher
levels of generalized trust. In our experiment, given that there are no monitoring or sanctioning
mechanisms present to potentially influence seemingly greater trusting behavior by the Japanese,
these two views on trust in Japan and the United States lead to the following contrasting
hypotheses:
H5a: Amounts sent and reciprocated will be greater in Japan than in the US (Ouchi).
H5b: Amount sent and reciprocated will be greater in the US than in Japan (Yamagishi and
Yamagishi; Hagen and Choe).
17
It should be noted that all of the theories presented here relate to differences in general
levels of trust across countries. Our study is the first to specifically examine cross-national
differences in direct versus indirect trust.
VI. Experimental Procedures Internationally
A total of 408 additional subjects participated in this experiment: 128 students from the
University of International Business and Economics in Beijing, China, 140 students from the
University of Korea in Seoul and 140 students from Osaka University in Japan. In our analysis
we will compare results from these subjects with those from our US subjects as described in the
previous section. We retained the double-blind procedure in our experiment in order to prevent
self-presentation (face-saving) effects that may be particularly prevalent among Asian subjects
[Bond and Hwang 1995].
Cross-country controls
The international character of this second study warranted that we control for country or
culture-specific variables that could influence our results. Specifically, we addressed the
following issues as suggested by Roth et al. [1991].
Controlling for subject pool equivalency. We controlled for equivalency in educational
background and knowledge of economics among the subject populations in three ways: First,
the universities chosen for the experiment were all well-known universities in their countries.
Second, subjects were all sophomore or junior economics or business undergraduate students and
were paid for their earnings in the experiment and third, subjects were questioned about their
level of exposure to economic theory and to game theory in particular. Answers to these
questions are entered as covariates in the final analysis of results.
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Controlling for currency effects. We controlled for purchasing power parity by choosing
denominations such that monetary incentives relative to subject income and living standards
were approximately equal across countries (as in Kachelmeier and Shehata [1992]). Amounts
used were Japan (2,000 yen), Korea (1,000 won), China (10 yuan). These amounts were based
on information from the US Bureau of Labor Statistics [Monthly Labor Review 1998], and on
the recommendations of three independent experts on each economy.
Controlling for Language Effects. To control for any nuances in language which may impact
results across countries, instructions for the experiments in China, Japan, and Korea were
translated into the native language and back-translated into English using separate external
translators.
Controlling for Experimenter Effects. Various measures were taken to control for differences
among experimenters in different countries. First, in each country, the lead experimenter was an
advanced student in business, and a native of that country. Second, an extremely thorough
experimental protocol was designed based upon the procedure used in the United States and used
in all four countries. The protocol included information such as the positioning of the
experimenter in the room, and the method to be used in answering subject questions. Third, the
experimenter from the United States met with the lead experimenter in each country prior to each
experiment to brief them on the protocol and to run through a practice (no subjects) session with
them. Finally, the American experimenter was present in the data recording room while each
experiment was being conducted.
VII. Results Internationally
19
We replicate our analyses described in Section IV adding the data from China, Japan and
Korea. Table III depicts means and standard deviations of amounts sent and proportions
returned in the four countries.
-------------------------------------Insert Table III about here-------------------------------------
Amounts Sent
The first column of Table IV presents the results of a regression of Amount Sent on both
country and condition.
-------------------------------------Insert Table IV about here-------------------------------------
As hypothesized, we observe significant differences across countries in levels of trust.
We see significant negative coefficients for Japan and Korea, both at the p<.01 level. In this
experiment, Japanese and Korean subjects extended significantly less trust than did American
subjects (the omitted variable). A Tukey HSD test reveals that the amounts sent by American
and Chinese subjects significantly differed from the amounts sent by Japanese and Korean
subjects (p<.05).7 Thus, our results support neither the experience in free trade argument
(Hypothesis 4a) presented by Smith, Hayek and Klein (which predicted that levels of trust would
be higher in the United States than in Japan or Korea, which in turn would be higher than in
China) nor the culturally based argument (Hypothesis 4b) proposed by Fukuyama (which
7
When testing for multiple comparisons throughout our analysis we employ the Tukey honestly significant
difference (HSD) test. As discussed by Winer et al. [1991], the Tukey HSD test allows for multiple
comparisons while controlling for the experimentwise error rate. When compared with other testing
procedures (i.e. a series of T-tests, Dunn-Bonferroni, Duncan, Scheffe, or Newman-Keuls tests, etc.) the
20
predicted that levels of trust would be higher in the United States and Japan than in Korea or
China). The significant differences between the US and Japan shown in the Tukey HSD test do
support the hypothesis of Yamagishi and Yamagishi [1994] and Hagen and Choe [1998]
(Hypothesis 5b) that Americans are more trusting than the Japanese in the absence of sanctioning
or monitoring mechanisms to influence cooperation.
Perhaps the most interesting result from the experiment is the existence of significant
coefficients for the interaction terms Group x Japan (p<.05) and Group x Korea (p<.10). What
these results reveal is the difference in the amount of trust exhibited by subjects from different
countries across the reciprocity conditions, as shown in Figure VI.
-----------------------------------------Insert Figure VI about here-------------------------------------
As can be seen in the graph, American and Chinese subjects trust the most in the direct
reciprocity condition, and much less, but relatively equal amounts, in the group and society
conditions. Japanese subjects on the other hand, trust roughly equally in the direct and group
conditions, but much less in the society condition. Finally Korean subjects seem to make a
distinction among all three conditions.
To tease out the significant interactions, we conducted analyses comparing mean amounts
sent across conditions for each national group. The results of the Tukey HSD tests reveal
different drop-offs in trust across countries. As an example, Tukey HSD tests demonstrate that
among American subjects, the mean amount sent in the direct condition of 782 units significantly
differed (at the p<.05 level) from the mean amount sent in the group condition of 489 units.
Tukey HSD and the Scheffe tests procedures are the most conservative and produce the lowest type-1
error rates.
21
However this amount sent in the group condition did not significantly differ from the 505 units
sent by Americans in the society condition. Therefore, we conclude that the drop-off in trust
among American subjects occurs in the move from direct to indirect reciprocity. Tests in each of
the four countries reveal that among Chinese subjects as well as American subjects, significant
declines in trust occur between conditions of direct and indirect reciprocity (p<.05 for both).
Among Japanese and Korean subjects the significant decline in trust occurs between the group
and society conditions (p<.05 for Japan, p<.10 for Korea). Thus in Japan and Korea, group-level
indirect reciprocity generates as much trust as direct reciprocity. These differences suggest a
very real country influence on the boundaries of trust.
The analysis of proportions returned shown in the second column of Table IV also
reveals differences across countries in levels of reciprocation. We see weakly significant
positive coefficients for China and Korea, (p<.10 for both). In this experiment, Chinese and
Korean subjects were more reciprocal than were American subjects. A Tukey HSD test
comparing proportions returned across countries reveals that the proportions returned by
American and Japanese subjects were significantly lower than the proportions returned by
Chinese and Korean subjects (p<.05). Thus, our results suggest that the strength of norms of
reciprocity may differ across countries. Similar to our results with amount sent, while there were
differences across countries these differences were not those predicted by economic-based
theories (Hypothesis 4a which predicted the most reciprocation in the US and the least in China),
nor by Fukuyama’s social capital-based theory (Hypothesis 4b which predicted the most
reciprocation in the US and Japan and the least in China and Korea). The results for proportion
returned also do not support the research suggesting differences in reciprocation between the US
and Japan (Hypothesis 5 a and b).
22
Unlike the results for amount sent, when analyzing proportions returned, we find no
significant condition x country interaction. The proportions returned across conditions and
countries are displayed in Figure VII. Interestingly, the clear demarcations in levels of trust that
we saw in the amount sent data do not seem to be translating into the same demarcations in
levels of reciprocity except among American subjects. Instead we see more constant drop-offs in
levels of reciprocation across conditions in the Asian countries.
-----------------------------------------Insert Figure VII about here-------------------------------------
The analysis across countries also yields significant differences in the distributions of
sender and responder wealth. The Tukey HSD test reveals k in Korea (k=.620), and China
(k=.434) to be significantly higher than k in Japan (k=.300) or in the United States (k=.277)
(p.<.05). Korean subjects are on average, splitting total earnings; in China the distribution is just
shy of a split of total return. In Japan and the US, the average sender received from the
responder slightly less than he sent. An examination of reciprocal responders reveals that in the
United States and Japan 17 and 18 out of 70 responders, (24% and 25% respectively), could be
classified as reciprocal. In China 30 of 64 responders (47%) were reciprocal, and in Korea 42 of
70 responders (60%) returned to senders more than was sent.
VIII. Discussion and Conclusion
Prior research has demonstrated the benefits of trust to groups and to societies. At the
aggregate level societies grow more prosperous [Knack and Keefer 1997], governments work
more efficiently [Putnam 1993], and groups achieve more cooperation and economic success
23
[Dawes 1980; Krugman 1995] because of the effects of trust in the presence of direct and
indirect reciprocation. In this research we studied the extent to which individuals trust under
conditions of both direct and indirect reciprocation. Our goal was to experimentally demonstrate
how trust and reciprocity changes when individuals trust for the benefit of a group or society as
opposed to trusting for their own benefit.
First, we find that across our conditions - the direct, group, and society conditions –
amounts sent and proportions returned significantly deviated from the equilibrium prediction.
Clearly, subjects were willing to trust and reciprocate, even to the potential benefit of someone
other than himself or herself. Thus we conclude that while trust is based on self-interested
calculativeness to some extent [Williamson 1993], we also agree with Rabin [1993] that the
actions of reciprocally motivated individuals produce outcomes that differ significantly from
those predicted by models of utility based purely on self-interest. Perhaps these actions are
motivated, as suggested by Sabel [1993], by trusting in a shared sense of community with a
common fate.
However, we also demonstrate significant declines in amounts sent and proportions
returned as reciprocity becomes more indirect. Specifically, subjects in the US trust and
reciprocate the most under conditions of direct reciprocity and less when the target of
reciprocation is a group member or a random person in (the experimental) society.
Our indirect reciprocity results are significant especially because they were demonstrated
under fairly subtle experimentally induced conditions. Subject identities remained anonymous
throughout the experiment, and subjects were told simply (through written instructions) that they
were members of a group for purposes of the experiment. The results of Glaeser et al. [1999]
also clearly demonstrated the influence of joint group membership on trust. In that research,
24
however, group membership was measured by characteristics such as the number of friends the
sender and responder had in common, being members of the same race, and the duration of their
acquaintanceship. The fact that social connection predicted the level of trust both in a situation
where it was based on real subject characteristics and also when it was based on an
experimentally constructed membership indicates the importance and power of group
membership in promoting trust.
Our second study investigates these questions in an international setting using subjects
from China, Japan and Korea. It is interesting that, contrary to the experience-in-free-trade
theory and Fukyama’s culture-based theory, both of which put China as the least trusting
country, Chinese subjects were both the most trusting and most reciprocal of any participants in
our study. This finding of high trust and cooperation among Chinese subjects replicates results
found in a variant of the trust game in Buchan, Johnson, and Croson [2000], and in a prisoners’
dilemma experiment in Buchan, Dickson, and Haytko [2000]. Additionally, although a lack of
available data on education and other variables prevented China from being included in the
cross-national trust research of Knack and Keefer [1997], the authors footnote that China’s score
of 60.3 percent on their trust scale was the highest score among thirty countries. This collection
of results seems to indicate that our understanding of why one country may be more trusting and
reciprocal than another is limited at best, and that more research is needed before we can
understand and predict the influence of national differences on trusting and reciprocal economic
behavior.
Having said that, our results concerning trust in Japan and the United States do agree with
the argument forwarded by Yamagishi and Yamagishi [1994] and by Hagen and Choe [1998]. In
this experiment, which contained no monitoring or sanctioning mechanisms to ensure
25
cooperation, trust was higher among American subjects than among Japanese subjects. It is
likely that deeper examination into social and psychologically-based explanations such as this
will yield insight into cross-national differences in trusting behavior.
The significant condition by country interaction in our results demonstrates not only the
difference in trusting behavior when reciprocity is direct versus indirect, but also that these
differences are country-specific. Thus the boundaries of trust differ across the four countries
studied depending on the linkage between the sender, the responder, and the target of potential
reciprocation. These results also suggest that the value of group membership may be higher in
some Asian countries than in the US. In Japan, for example, trust in the presence of indirect
(group) reciprocity was the same as trust in the presence of direct reciprocity.
One logical question arising from our findings, especially for those wanting to participate
in the global economy, is how to become perceived as a member of the group – particularly in
Japan where our results indicate much more trust and reciprocity in the group than in society.
An area for future research would be a cross-national study with participants from different
countries playing the trust game with each other. In doing so, we could explore whether the
boundaries of group trust and reciprocity are flexible enough to include in the group a member of
a different country. We would also be able to examine whether externally induced group
boundaries (as used in the present research) would be impetus enough to prompt trusting
behavior among players from different countries, or whether the type of social connection
suggested by Glaeser et al. [1999] is ultimately necessary to promote trust and reciprocation.
To put our results into perspective it is interesting to note the relationship between trust
and reciprocity across countries. Chinese subjects were both very trusting and very reciprocal,
while Japanese subjects were relatively much less trusting and much less reciprocal. The direct
26
relationship between trusting and reciprocal behavior in these two countries seems clear. In
contrast, American subjects were highly trusting, but had low levels of reciprocation, while
Korean subjects had low levels of trust, but high levels of reciprocation.
Finally, in the introduction of this paper we discussed the need for a link between our
understanding of trust and its impact on the individual versus our knowledge of trust and its
influence on society. We believe that this research begins to build that link. Across the four
countries studied, in the direct reciprocity condition 55 of 56 senders were trusting and sent
money to the responders. In 71% of those cases, the senders’ trust was reciprocated by the
responders. That is, in the direct reciprocity condition, 71% of senders ended up better off
(wealthier) than when they had begun as a result of their trust and their partner’s reciprocation.
Although the benefits of trust decrease as reciprocation becomes more indirect, our
results show that members of society still benefit from individual’s trust. One hundred and one
of 112 senders were trusting in the society condition, and 23% of senders benefited from that
trust and received back more than they had sent. These results show that people will trust to
benefit other members of society even in the absence of direct reciprocity, and as a result, a
significant portion of society ends up better off than they were.
27
*Assistant Professor of Marketing
University of Wisconsin – Madison
4261 Grainger Hall
975 University Avenue
Madison, WI 53706-0394
Phone: 608-263-7720
Fax: 608-262-0394
e-mail: nbuchan@bus.wisc.edu
**Associate Professor of Operations and Information Management
The Wharton School, University of Pennsylvania
Steinberg Hall – Dietrich Hall
Philadelphia, PA 19104-6377
*** The Charles J. Queenan, Jr. University Professor
Dept. of Social & Decision Sciences
Carnegie Mellon University
Pittsburgh, PA 15213-3890
28
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31
Table I
Descriptive Statistics
Condition
Amount Sent
(out of 1000)
Proportion
Returned
Direct
Group
Society
782.14
488.64
505.46
(219.79)
(336.96)
(357.90)
0.319
0.114
0.130
(0.15)
(0.129)
(0.209)
32
Table II
Regression Analysis
Amn’t Sent
699.40***
-287.89***
-262.24**
36.65
26.52
Independent Variable
Intercept
Group
Society
Gender
Economics education
Amount Sent
Adjusted R2
Number of Observations
^ p<.10
* p<.05
** p<.01
33
Prop Ret
0.227**
-0.231**
-0.194**
0.025
0.042
0.0001**
.120
.375
69
69
Table III
Descriptive Statistics Internationally
Amount Sent (Out of 1,000 Units)
Condition
American
Chinese
Japanese
Korean
Mean
Direct
Group
Society
Mean
782.14
488.64
505.46
554.07
(219.79)
(336.96)
(357.90)
(341.92)
728.57
482.72
477.17
534.07
(246.29)
(245.59)
(347.28)
(308.34)
504.28
508.83
236.25
398.89
(282.48)
(289.98)
(294.14)
(315.73)
526.78
443.25
330.17
414.72
(263.56)
(264.63)
(282.17)
(278.26)
635.44
480.75
387.26
474.15
(275.87)
(285.47)
(336.22)
(310.86)
Proportion Returned
Condition
American
Chinese
Japanese
Korean
Mean
Direct
Group
Society
Mean
0.319
0.114
0.130
0.162
(0.15)
(0.129)
(0.209)
(0.185)
0.409
0.265
0.154
0.248
(0.145)
(0.203)
(0.115)
(0.183)
0.249
0.147
0.092
0.146
(0.179)
(.130)
(0.212)
(0.183)
0.425
0.236
0.208
0.263
(0.256)
(0.153)
(0.214)
(0.215)
0.350
0.187
0.146
0.200
(0.196)
(0.163)
(0.194)
(0.191)
Standard deviations are given in ( ).
34
Table IV
Regression Analysis Internationally
Independent Variable
Intercept
Group
Society
China
Japan
Korea
Group x China
Group x Japan
Group x Korea
Society x China
Society x Japan
Society x Korea
Gender
Economics education
Amount Sent
Adjusted R2
Number of Observations
^ p<.10
* p<.05
** p<.01
35
Amn’t Sent
782.14**
-293.57**
-276.68**
-53.57
-277.86**
-255.36**
47.72
298.13*
221.30^
25.25
8.46
80.07
-62.40
45.30
0.165
273
Prop Ret
0.3194**
-0.2049**
-0.1887**
0.1099^
-0.0703
0.1103^
0.0611
0.1036
0.0159
-0.0658
0.0322
-0.0283
0.0381
0.0006
0.0001**
0.267
273
Figure I
Direct Condition
Experimenters
triple amount sent
You
Proposer A
Responder B
This room
Another room
36
Figure II
Group Condition
Experimenters
triple amount sent
triple amount sent
Responder
D
You
Proposer A
Responder
B
Proposer C
This room
Another room
37
Figure III
Society Condition
Experimenters
triple amount sent
triple amount sent
Other
Proposer
Responder
D
You
Proposer A
Responder
B
Other
Proposer
This room
Another room
38
Figure IV
Distribution of Amounts Sent and Proportions Returned
1000
1.00
900
0.90
800
0.80
700
0.70
600
0.60
500
0.50
400
0.40
300
0.30
200
0.20
100
0.10
0
0.00
Sent
Pr opor tion Retur ned
Amount Sent
Direct Condition
(N=14 Senders, 14 Responders)
Proportion Returned
1000
1.00
900
0.90
800
0.80
700
0.70
600
0.60
500
0.50
400
0.40
300
0.30
200
0.20
100
0.10
0
0.00
Sent
Proportion Returned
Amount Sent
Group Condition
(N=28 Senders, 28 Responders)
Proportion Returned
1000
1.00
900
0.90
800
0.80
700
0.70
600
0.60
500
0.50
400
0.40
300
0.30
200
0.20
100
0.10
0
0.00
Sent
Proportion Returned
39
Proportion Returned
Amount Sent
Society Condition
(N=28 Senders, 28 Responders)
Figure V
Distribution of Joint Earnings
40
Figure VI
Average Amount Sent
Overall and by National Group Across Conditions
1000
Amount Sent
800
600
400
200
0
Overall
Americans
Direct
41
Chinese
Group
Japanese
Koreans
Society
Figure VII
Average Proportion Returned
Overall and by National Group Across Conditions
100%
Proportion Returned
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Overall
Americans
Direct
42
Chinese
Japanese
Group
Society
Koreans
43