Investments in and returns on network embeddedness: An experiment with trust games

Abstract

Trust problems are ubiquitous in social and economic exchange. They are known to be mitigated if exchange partners are embedded in social structures that disseminate information on past behavior. If such “network embeddedness” makes exchanges possible that would not be possible otherwise, it is also expected that actors are willing to exert effort to establish embeddedness. Theory suggests that the degree to which network embeddedness facilitates trust depends on the size of the trust problem, and there are reasons to expect that embeddedness facilitates trust more strongly if it is established endogenously rather than imposed exogenously. We tested these predictions in a laboratory experiment in which 342 participants played repeated trust games with exogenous or endogenous embeddedness under varying sizes of the trust problem. The results confirm that embeddedness promotes trustfulness and trustworthiness. The results also show that endogenously chosen embeddedness promotes trustfulness more strongly than exogenously imposed embeddedness. However, we find no systematic variation in investments in embeddedness or effects of embeddedness in the size of the trust problem.