Do Investors Trust or Simply Gamble?

Posted: 4 Feb 2011

See all articles by Timothy W. Shields

Timothy W. Shields

Chapman University - The George L. Argyros College of Business and Economics; Chapman University - Economic Science Institute

Roman M. Sheremeta

Case Western Reserve University

Date Written: January 14, 2011

Abstract

We design an experiment to study individual behavior in a strategic information setting where the sender has economic incentives to deceive and the receiver has economic incentives to avoid deception. To ascertain whether subjects in the role of receiver glean information content from the sender's message, we elicit choices from risky gambles constructed to be mathematically equivalent to the information setting if the sender's message lacks information content. In the experiment subjects act simultaneously as a sender and receiver in a one-shot interaction. The findings of our experiment indicate that (i) subjects tend to act deceptively as senders but trusting as receivers, (ii) as receivers, subjects glean excessive information content from the senders' messages, and (iii) risk preferences are consistent across tasks. Thus, we find investors (receivers) trust.

Keywords: experiment, level-k thinking, strategic communication, risk preference, beliefs

JEL Classification: C72, C91, D82, D83

Suggested Citation

Shields, Timothy W. and Sheremeta, Roman M., Do Investors Trust or Simply Gamble? (January 14, 2011). Available at SSRN: https://ssrn.com/abstract=1754168 or http://dx.doi.org/10.2139/ssrn.1754168

Timothy W. Shields (Contact Author)

Chapman University - The George L. Argyros College of Business and Economics ( email )

1 University Drive
Orange, CA 92866
United States

Chapman University - Economic Science Institute ( email )

1 University Drive
Orange, CA 92866
United States

Roman M. Sheremeta

Case Western Reserve University ( email )

10900 Euclid Ave.
Cleveland, OH 44106
United States

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