Higher Stakes Increase Trust Among Strangers

Newswise — After buying a 120-year-old pipe on eBay from a seller in China, UC Berkeley Haas School of Business Professor Teck Ho became intrigued by the role of trust in Internet marketplaces.

Ho, the William Halford Jr. Family Professor of Marketing and Acting Associate Dean for Academic Affairs, decided to test trust relationships between strangers in the laboratory by devising a two-player, four-stage game. Among his questions: Do social gains affect trust? Does stake size affect trust? And are there cultural differences of trust?

The game, which Ho conducted in three countries, yielded some unexpected results and became part of another ongoing project that examines strategic decision-making.

After 386 participants played the game in China, Singapore, and the US, Ho and colleague Keith Weigelt, a professor at Wharton, did not uncover any cultural differences in trusting behavior. But they were surprised to find that players are actually more trusting of each other when the stakes were higher. Ho and Weigelt discuss their results in a recent article, "Trust Building Among Strangers" (Management Science, April 2005). To access the study, visit http://faculty.haas.berkeley.edu/hoteck/PAPERS/Trust.pdf.

In the US and Singapore, Ho and Weigelt could afford to hold only low-stakes games, netting players an average of $10 to $15 per hour of play. But thanks to currency exchange rates, they held higher-stakes games in China, awarding winners the equivalent of two months of wages earned by a blue-collar worker.

Ho expected the high-stakes Chinese players to be more tempted to take the money and run rather than trust each other and share their winnings. But that didn't happen.

"The results were amazing," says Ho. "In China, the players realized there was a lot more to be gained by trusting and then rewarded each other for their trustworthiness."

Ho has folded his trust game into another ongoing project, on strategic IQ, which Ho defines as one's ability to analyze and predict competitors' actions and subsequently choose responses to outwit them. The trust game is one of 35 brain-bending game theory questions carefully selected to measure strategic IQ. Ho envisions the test being used for MBA students planning to take a consulting job or military personnel.

Ho, who received a $560,000 grant from the National Science Foundation, is still revising the test but already has given a prototype version to 100 undergraduates. This summer he will run it on army soldiers in Singapore, where he is from. In the fall, he and colleague Colin Camerer, a professor at the California Institute of Technology, plan to perform the test on subjects undergoing MRI brain scans to learn how specific parts of the brain may be involved in different strategic decision making.

"We want to develop an instrument that is based scientifically on neuroscience and game theory to ultimately be used to screen strategic personnel," Ho says. It may even prove to be relevant to patients with brain damage.

In previous studies, Ho has applied decision science to new product development for firms such as Campbell Soup Company. He received a master's degree and a Ph.D. in decision science from Wharton. He had an assistant professorship at UCLA's Anderson School and an associate professorship at Wharton before joining Haas in 2002.

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