Costa-Gomes, M.A.; Huck, S.; Weizsäcker, G.; (2010) Beliefs and actions in the trust game: creating instrumental variables to estimate the causal effect. (ELSE Working Papers 368). ESRC Centre for Economic Learning and Social Evolution: London, UK.

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Abstract

In many economic contexts, an elusive variable of interest is the agent's expectation about relevant events, e.g. about other agents' behavior. Recent experimental studies as well as surveys have asked participants to state their beliefs explicitly, but little is known about the causal relation between beliefs and other behavioral variables. This paper discusses the possibility of creating exogenous instrumental variables for belief statements, by shifting the probabilities of the relevant events. We conduct trust game experiments where the amount sent back by the second player (trustee) is exogenously varied by a random process, in a way that informs only the �first player (trustor) about the realized variation. The procedure allows detecting causal links from beliefs to actions under plausible assumptions. The IV estimates indicate a signi�ficant causal effect, comparable to the connection between beliefs and actions that is suggested by OLS analyses.

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