Using Experimental Economics to Measure Social Capital and Predict Financial Decisions

By Dean S. Karlan. 2005

913 citations recorded by the source corpus.

Questions remain as to whether results from experimental economics are generalizable to real decisions in nonlaboratory settings. Furthermore, questions persist about whether social capital helps mitigate information asymmetries in credit markets. I examine whether behavior in two laboratory games, Trust and a Public Goods, predicts loan repayments to a Peruvian group-lending microfinance program. Since this program relies on social capital to enforce repayment, this tests the external validity of the games. Individuals identified as "trustworthy" by the Trust Game are indeed less likely to default on their loans. No similar support is found for the game's identification of "trusting" individuals.

Subfields: Accounting, Economics and Econometrics, Safety Research

View Paper: https://www.semanticscholar.org/paper/7dba3fd734aff8913c1eeaa25f84a8c7dfac41b1

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Citations in the corpus

Trust: An Integrative Review from a Person–Situation Perspective (2015, background): “4 Note that some authors interpreted this effect of risk aversion on trust behavior in terms of a limitation of the trust game to appropriately disentangle trust from risk (Karlan, 2005; Sapienza et al., 2013; Schechter, 2007).”
Group versus Individual Liability: Long Term Evidence from Philippine Microcredit Lending Groups (2009, neutral): “This is consistent with results from Karlan (2005), in which trustworthy behavior in a lab experiment in the field predicted repayment of loans one year later to a microcredit organization in Peru.”
Get Real! Individuals Prefer More Sustainable Investments (2018, neutral): “Second, we contribute to a growing stream of literature on social preferences in the field (e.g. Frey and Meier 2004; Karlan 2005; Gneezy and List 2006; List 2006; Gneezy et al. 2010; DellaVigna et al. 2012; Stoop et al. 2012; Andreoni et al. 2017; Kessler et al. 2019).”
Group versus individual liability: Short and long term evidence from Philippine microcredit lending groups (2014, neutral): “This is consistent with results from Karlan (2005), in which trustworthy behavior in a lab experiment in the field predicted repayment of loans one year later to a microcredit organization in Peru.”
The effect of social capital on group loan repayment: evidence from field experiments* (2007, neutral): “4 In addition to questions related to demographic characteristics and the subject's involvement in society, the Berd questionnaire included three attitudinal questions from the General Social Survey (GSS) that relate to trust, also used in Karlan (2005)." The subjects were guaranteed a minimum of 1,”
Social Capital, Investments and External Financing (2015, neutral): “Karlan (2005) examines whether experimental economics can be used to measure social capital and finds that even though behavior in trust experiments might correlate with other measures of social capital, using it as a measure of social capital alone might be insufficient.”
Other Regarding Preferences: A Selective Survey of Experimental Results (2012, background): “69 In a similar vein, Karlan (2005) reports that Player 2s identified as returning more in a laboratory trust game in rural Peru were more likely to repay their loans one year later in a microcredit program.”
The Impact of Violence on Individual Risk Preferences: Evidence from a Natural Experiment (2015, background): “8See Ashraf, Karlan, and Yin (2006) for a notable exception.”
Giving Credit Where It Is Due (2010, background): “Karlan (2005) finds that behavior of group members toward each other in trust games predicts future savings and repayment behavior.”
Economic incentives and social preferences: substitutes or complements? (2012, background): “” Was Schelling’s experience atypical? Incentives work, often affecting the targeted behavior almost exactly as conventional economic theory predicts: textbook examples include the work response of Tunisian sharecroppers and American windshield installers, and the reduced criminal activities of form”
Socioeconomic Status and Inequalities in Children’s IQ and Economic Preferences (2017, neutral): “…with cooperative behavior in various domains of life, including the work place, donating, repayment of loans, ormanagement of common pool resources (Karlan 2005; Dohmen et al. 2009; Rustagi, Engel, and Kosfeld 2010; Carpenter and Seki 2011; Becker et al. 2012; Burks et al. 2016; Deming 2017).”
Vote-Buying and Reciprocity (2011, neutral): “Several studies have shown that behavior in the lab can be predictive of a person’s decision to, for instance, repay their microfinance loans (Karlan, 2005), donate to charities (Benz and Meier, 2008), or exert more effort in team production (Carpenter and Seki, 2011).”