The value of vulnerability: The transformative capacity of risky trust

Abstract

AbstractIn an experimental gift-exchange game, we explore the transformative capacity of vulnerable trust, which we define as trusting untrustworthy players when their untrustworthiness is common knowledge between co-players. In our experiment, there are two treatments: the “Information” treatment and the “No-Information” treatment in which we respectively disclose or not information about trustees’ trustworthiness. Our laboratory evidence consistently supports the transformative capacity of trustors’ vulnerable trust, which generates higher transfers, more trustworthiness and increased reciprocity by untrustworthy trustees.