The influence of collectivism on trustworthiness when managing the assets of a group

Tafarrohi, Elvira

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The influence of collectivism on trustworthiness when managing the assets of a group

Online experiments in India and the United States

Bachelorarbeit, 2015
45 Seiten, Note: 2,3

BWL - Allgemeines

Leseprobe

Table of Contents

Introduction and motivation

Theoretical background

2.1

Trustworthiness

2.1.1 Behavioural economics

2.1.2 Trust Game

2.1.3 Distinction between TWN and Reciprocity

2.1.4 Relevance of TWN in group decisions across cultures

2.2

Culture

2.2.1 Measurement of Culture Overview

2.2.2 The IND/COL - Scale

2.3

Relation between TWN and culture

The experiment

3.1

The experimental design

3.2

Trust Game incentives

3.3

Annotations

Results

4.1

The sample

4.2

Results IND/COL-Scale

4.3

Results TWN

4.4

Hypotheses

Discussion

Appendix...III

References...XVIII

1 Introduction and motivation

Situations like returning money borrowed from a friend, receiving the planned and

paid medical treatment in a hospital, being a motivated employee as claimed in the

interview, spending money for a project as promised at the charity or choosing a reliable

supply firm are examples where trustworthiness (TWN) might occur. Trust is seen as a

fundamental requirement of a growing and successful economy; hence, trustworthiness

is also an indispensable part. Some might claim that trustworthiness comes from trust,

while others, like Hardin (2002) for example, go a step further and see trustworthiness

as the reason for trusting. Others, like Chauduri and Gangadharan (2007), consider

trustworthiness more important than trust. Hence, additional knowledge about what

impacts trustworthiness, could be helpful in peoples' everyday life as well as in the

economy.

The purpose of my thesis is to provide an answer to the research question "How

does collectivism and individualism relate to trust and trustworthiness when managing

the assets of a group?".

First, I investigate, whether the distinction of the cultural

background of my chosen countries is valid. This assumption does only hold to a certain

degree. I go on with the analysis of the impact on trustworthiness when ones' decision

affect either his own or the payoff of three more group members. According to my data,

there is no evidence that people vary the fraction returned dependent on whether they

decide for themselves or additional group members.

2 Theoretical background

The research question involves three points, namely trustworthiness, culture and the

understanding of managing group assets. To provide information about these points,

they are briefly discussed in the following, before the research question can be

answered.

2.1 Trustworthiness

Barney and Hansen (1994) derive the definition of trustworthiness from Sabel's

(1993) definition of trust, which says that "trust is the mutual confidence that no party

will exploit another's vulnerabilities". Barney et al. interpret the attribute "trustworthy"

as a characteristic of an exchange partner who does not behave in a selfish manner and

does not take advantage of an exposed interaction partner. Barney makes another

notably distinction: due to him the attribute trust refers to the relationship between at

least two interaction partners as opposed to that the attribute trustworthy describes a

characteristic of an individual interaction partner.

2.1.1 Behavioural economics

In the eighteenth-century Adam Smith mentioned imperfections in human

behaviour. According to Smith these imperfections might have an impact on economic

decision making. For a very long time economic research simply ignored his idea and

went on with the assumption of the homo oeconomicus. An extensive description of the

homo oeconomicus is, for instance, provided by Tietzel (1981). Tietzel describes the

homo oeconomicus as a completely rational and self-interested payoff-maximizer.

Further research reveals differences between empirical results and expected results

under the assumption of economic rational behaviour focussing only on monetary

outcomes (Henrich, 2001). Originally, economists understood rational behaviour as a

pattern with the focus on maximizing assets. This assumption was expanded and the

field of behavioural economics evolved with the assumption of individuals as utility-

maximizer. This field of research takes non-monetary, other-regarding, social,

preferences into account. In 1944 the Neumann-Morgenstern utility function was

developed, a function to measure utility instead of only monetary payoffs. Thus, each

individual has his own utility function, which accounts for almost everything one could

have utility and also disutility from, for instance from social preferences. Fehr et al.

(2002) analyse a variety of research and come up with a list of the four "quantitatively

most important social preferences", namely preference for reciprocity or reciprocal

fairness, inequity aversion, pure altruism and spiteful or envious preferences. Linnda

Caporael and her colleagues (1989)

were some of those who challenged the validity of

the homo oeconomicus-assumption with a "series of experimental social dilemmas".

She found evidence for a phenomenon that biases towards in-groups cannot be

explained only by traditional economic theories. And further that there might be

additional factors which influence and determine behaviour. Nevertheless, one should

not overgeneralize those findings since the most experimental subjects were

undergraduates from universities in the United States and critics venture the guess that

they are not

representative for the entire society.

2.1.2 Trust Game

The Trust Game (TG), also known as the investment game (Berg et al. (1995)), is a

decision task used to measure trust and trustworthiness in economic contexts. The best-

known Trust Game is the one played by Berg et al. (1995). They investigated what

factors (e.g. social history) might have an impact on the probability of the presence of

trust and trustworthiness in economic decisions. Berg et al. has found evidence that the

game-theoretic predictions do not always hold. In their study more than 90% of the

participants deviated from the equilibrium. The TG has been replicated several times,

for instance by Burks et al. (2002), often for the purpose of comparing the results of

Berg et al. to those from a TG with varying modifications of the experimental design.

The TG as in Berg et al. (1995) works as follows: two players are endowed with a

certain amount of money or a money equivalent. One player is assigned the role of the

investor, the other the role of the trustee. First Player A, the investor, has to decide

whether he wants to invest in Player B or not. Player B, the trustee, receives the amount

multiplied by a number bigger than 1. In a second step Player B has to decide whether

he returns a certain amount or not. The game in its original form is a one-shot sequential

game, which means that it is played only once and decisions are made consecutively.

Any interaction or communication between A and B is prohibited. The current

interpretation is the following: the higher the invested amount sent by Player A, the

higher the trust Player A places on an opponent party, and likewise, the higher the back

transfer of Player B the more trustworthy or reciprocal he is, depending on which

information Player B receives. For instance, Player B could get information about the

exact investment, only whether there was an investment or not or maybe will just know,

about previous decisions of the investor. Player A's decision to invest is incentivized by

a potential higher payoff, as it is usual in economic experiments. Hence, given the case,

that the fraction returned by Player B is smaller than the invested amount by A, Player

A would be worse off.

Game theorists use backward induction to derive the result of the TG, a strategy

where one starts from the last decision node of a game, the so-called subgame.

The

decision of Player B is such a subgame, where he has to decide how to split the amount.

At this point A has to accept whatever B offers. For B the only rational, subgame

perfect decision is to keep the total amount. Anticipating this decision Player A, will

Information collected from the lecture slides of ,,Microeconomics II Game Theory" held by Prof. Dr.

Carlos Alós-Ferrer

himself decide rationally to invest nothing. So the game-theoretic prediction is a unique

subgame-perfect Nash equilibrium in which both players keep their initial endowment

(cf. Kreps, 1990).

2.1.3 Distinction between TWN and Reciprocity

Trustworthiness is often used as a synonym for reciprocity and vice versa. But one

should be careful with this equation. In their theory of reciprocity Falk and Fischbacher

(2006) define reciprocity as a "behavioral response to perceived kindness and

unkindness [...]". In other words, this indicates that reciprocity needs at least one

preceding action to occur. Combined with the understanding of the aspects of

trustworthiness as an intra-personal characteristic rather than as an interpersonal

response pattern, this might lead to an instrument for the distinction between TWN from

reciprocity. Cox (2004) criticises that one-shot games cannot "discriminate between

transfers resulting from ... reciprocity and transfers from other-regarding preferences."

(p.262). Further, Cox claims that one should be able to distinguish between the motives

for reciprocity. He concludes that often it is not clear what exactly is measured.

2.1.4 Relevance of TWN in group decisions across cultures

There are various situations where it could be time- and moneysaving if one knew

whether the interaction partner can be trusted. Those situations are generally those with

asymmetric informed parties. An example where asymmetric information occurs is a

potential employee who claims to be the best fit for the job. Only the employee himself

knows whether he is or not. This relation is known as the principal-agent theory.

Companies try to solve those problems with the choice of the salary or a probation

period (Jensen, Meckling (1979)). Hence, for companies it might be helpful to know

whether there exists a general strategy to overcome asymmetric information problems.

In general, managers could eliminate uncertainty about potential interaction partners, in

other words, there exists a complete and binding contract about all kinds of rights. This

behaviour decreases potential gains and hence, the overall welfare. Eliminating

uncertainty by building trust and trustworthiness might maximize, but at least increase,

the overall welfare in the economy. Thus, a lack of trust, presumably caused by a lack

of trustworthiness, leads to little or no investments.

Most of businesswomen and businessmen seem to be sensible of the fact that in

foreign countries people have different ways of thinking and traditions. When crossing

boarders for another job position, employees are often prepared for their stay abroad

with a cross-cultural training. Triandis (1988) proposed such trainings and gave

recommendations for better collaboration between collectivistic and individualistic

cultures. That is one reason why nowadays experience abroad has become an essential

requirement of employers. Evidence for systematic differences in decision behaviour

between cultures could enable predictions about one's behaviour and therefore lead to

better cooperation caused by symmetric information between economic agents and

groups. Kocher and Sutter (2007) concluded from evidence in literature that, when it

comes to intellectual decision tasks, groups often perform better than individuals do.

Since each culture entails values and characteristics, the next step could be to identify

the main attributes responsible for trustworthiness. This could change the focus of

employers when hiring new employees. With in-service training companies could try to

encourage purposefully those behavioural characteristics. This proposal comes from

Pornpitakpan (2008), who claims, that perceived trustworthiness can be increased by

adapting behavioural pattern of the respectively opposite culture.

There exist some studies about a Trust Game (TG) played cross-culturally, for

instance one by Akai et al. (2009), who compared trust and reciprocity between Austria

and Japan. It was played multiple times one-on-one or with another people's money

(Kvaløy and Luzuriaga (2014)). I do not know about a cross-cultural TG in which

participants had to decide as group heads. This is noteworthy since in most companies

there are teams rather than individuals responsible for cooperation and trading with

other companies from abroad. Consider, for instance, a manager who has to decide

whether his team or firm should cooperate with another company or not. His decision

will affect not just himself but many others. Quite often a manager does not even know

whom in particular his decisions will affect. If, for example, research finds out, that,

with a growing number of affected employees, managers behave more trustworthy in

the sense caring for the affected employees, this might have an impact on the design the

firm's management positions.

2.2 Culture

"Culture" is probably a concept most feel familiar with. Culture influences the

individual's behaviour and decision making, it determines attitude towards teaching and

teaching of values (Triandis, 1995). Thus, every decision one makes, is influenced by

one's social environment and vice versa. Nevertheless, culture seems to be very difficult

and not very clearly definable. Kroeber and Kluckhohn (1963) analysed a vast number

of definitions for "culture". According to their findings, culture can be classified into

seven groups taking historical, psychological, structural and genetic influences into

account. Most of the definitions Kroeber and Kluckhohn collected are very broad and

describe culture as a concept which contains varying aspects concerning knowledge,

habits, political attitudes, morals and other social values. For Hofstede (2011) culture

"is the collective programming of the mind that distinguishes the members of one group

or category of people from others". (p.3) Hui and Triandis (1986) explain that "IC

[Individualism Collectivism] can be seen as a cultural variable as well as a personality

variable" and further that "it is useful, therefore, to view collectivism as a cluster of a

wide variety of beliefs and behaviors". (p.229)

2.2.1 Measurement of Culture Overview

If the definition of culture already seems to be difficult, the measurement is even

more challenging. Hofstede (1984) uses an individualism index, a one-dimensional

view of human values. According to Hofstede, individualism and collectivism are

extremes of a continuum. Hence, national cultures could be either one or the other of

those extremes or could lie anywhere in between (Singelis (1995)). Triandis and Brislin

et al. (1988) came up with the idea of different types of selves, namely horizontal

individualism (HI) and vertical individualism (VI), horizontal collectivism (HC) and

vertical collectivism (VC). Those four categories stand for uniqueness (HI),

achievement orientation and autonomy (VI), cooperativeness (HC) and dutifulness and

competition (VC). Triandis (1995) revised this classification and claims that there are

four kinds of self: "independent" or "interdependent" and "same" or "different".

Combining those attributes allows for a distinction between four types of culture. Thus,

"interdependent" and "independent" distinguish collectivism and individualism. The

attributes "same" and "different" describe whether one self is assumed to be as the other

(horizontal) or if individuals are assumed to be different (vertical). Furthermore,

Triandis argues, that both, individualism and collectivism, can be horizontal or vertical

orientated, in the sense that there exists either a preference for equality (horizontal) or

for hierarchy (vertical) among the society. In addition to that, he claims, that

individualism in one country is not identical to individualism in another. And further,

that two individualistic nations have in common, that they emphasize attitudes more

than norms. In collectivistic countries, norms are emphasized more than attitudes.

2.2.2 The IND/COL - Scale

With the Model of National Culture Hofstede provides information about the

cultural differences and similarities of approximately 100 countries. Hofstede (2011)

distinguishes

between

six

dimensions

national

culture,

one

Individualism/Collectivism (IND/COL). He defines Individualism as "the degree to

which people in a society are integrated into groups". Singelis et al. (1995) analysed

existing research and came to the conclusion that "we need instruments that are both

relatively short and reliable". They developed the IND/COL-Scale with which Singelis

and his colleagues "attempted to provide such items". This scale is a set of 32 questions

with eight items each. For each question one is asked to express how much he agrees or

disagrees with the statements. The answer scale ranges from 1 ("definitely no") to 9

("definitely yes"). Eight items are assigned to each of the four types of self as proposed

by Triandis and Brislin (1988), namely horizontal individualism (HI), vertical

individualism (VI), horizontal collectivism (HC) and vertical collectivism (VC).

2.3 Relation between TWN and culture

For a long time, culture has been investigated mainly in the field of social

psychology with a strong connection to the analysis of the social self and first

distinctions between two concepts comparable to individualism and collectivism (cf.

Fiske (1992), Rokeach (1973)). Most of the today's knowledge used for economic

research is based on studies of social psychologists, mainly from Triandis and Hofstede.

More and more research was done, most resulted in deviations from the homo

oeconomicus and lead to multiple evidence that decision-making is not limited to

maximising monetary assets but that there exist social preferences. Social preferences

are preferences which cannot be measured in monetary but in utility units. Hence,

deciding for equally distributed payoffs could also be rational, if one is inequality

averse. Classical course book economics teaches rationality as being self-interested in

the sense that one aims to maximize his monetary payoff. Hence, rationality can be

might be understood as the motivation for the decision to maximize the own payoff.

However, empirical evidence indicates the classical economic understanding to be

incomplete. Hence, scientists started to involve social preferences in their models and

theories. Tajfel and Turner (1979) developed the social identity theory. This theory

states, that people have preferences for in-group members rather than for outgroup

members. If the human in the decision process evidently has an impact on the result,

then one could argue that, since culture forms the way of thinking and acting of a

human, it is rather culture that influences behaviour (Triandis, (1995)).

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Details

Titel: The influence of collectivism on trustworthiness when managing the assets of a group
Untertitel: Online experiments in India and the United States
Hochschule: Universität Konstanz
Note: 2,3
Autor: Elvira Tafarrohi (Autor:in)
Jahr: 2015
Seiten: 45
Katalognummer: V430949
ISBN (eBook): 9783668744462
ISBN (Buch): 9783668744479
Dateigröße: 2330 KB
Sprache: Englisch
Schlagworte: experimental economics trust trustworthiness culture collectivism india united states individualism
Preis (Ebook): US$ 19,99
Preis (Book): US$ 28,99

Arbeit zitieren: Elvira Tafarrohi (Autor:in), 2015, The influence of collectivism on trustworthiness when managing the assets of a group, München, Page::Imprint:: GRINVerlagOHG, https://www.diplomarbeiten24.de/document/430949