Trust Game In Behavioral Economics

Picture a scenario where you are the executive of a growing IT company. Given the remote working norms, you recently hired a team of developers whom you've never met personally. Now, you want to entrust them with a critical software development project. The question facing you is - How much should you trust them? This is the situation where understanding the Trust Game in Behavioral Economics can guide you to make an informed decision.

What is the Trust Game?

Trust Game is a standard model in behavioral economics to measure levels of trust and trustworthiness in economic exchange. In this game, two players are given a sum of money. The first player, the 'trustor', sends a portion of the money to the second player, the 'trustee'. The sent amount gets multiplied, and then the trustee decides how much to return to the trustor. The trustor's amount sent is an indicator of trust, while the trustee's amount returned signifies trustworthiness.

Why is it Important?

Trust is a fundamental element in effective collaboration and productive relationships, not just in professional settings, but in all aspects of life. In economics, it plays a crucial role to facilitate exchanges, reduce transaction costs, and foster cooperative behaviors. The Trust Game offers a means to quantitatively evaluate this inherently elusive and subjective trait, providing valuable insights for decision-making.

How Is It Applied?

In the scenario outlined above, as a company executive considering how much project responsibility to delegate to the newly hired team, you can actually apply the Trust Game.

1. Analogous Trustor Role: Consider yourself in the trustor's role. The task responsibility you're willing to allocate to your remote team corresponds to the money the trustor decides to send.
2. The Multiplication Concept: The multiplication of the trustor's money by an external factor can be seen as the expansion and refinement of the assigned task when worked on by the team.
3. Trustee's Decision: The return on trust would be the quality and timeliness of the completed task.

Remember, the game is about risk and reward. The trustor risks the initial amount with the hope of a larger return, reflecting the risks you take when delegating responsibility. How much trust you should place in your team depends on your willingness to accept potential loss against possible gain.

Conclusion

The Trust Game helps one understand the complexities of trust in economic exchanges. It aids in knowing the right amount of trust to place when there is risk involved, like in the case of delegating tasks to a new team. This understanding can lead to better decision-making, potentially creating more collaborative and productive professional relationships.